Appeal Details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 3494 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 3 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-02-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
K
Next Hearing Date
16-03-2015
Assessment Year
2007-2008
Appeal Filed On
17-11-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.7779/M/2011 ASSESSMENT YEAR: 2007-08 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD., GATE NO.4, UNIT 19, GODREJ INDUSTRIES COMPLEX, EASTERN EXPRESS HIGHWAY, VIKHROLI (EAST), MUMBAI 400 093 PAN: AABCI 1046A VS. ASSISTANT COMMISSIONER OF INCOME TAX-1(2), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI M.M. GOLVALA, A.R. REVENUE BY : SHRI A.A. KHAN, D.R. DATE OF HEARING : 04.02.2016 DATE OF PRONOUNCEMENT : 29.02.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 08.08.2011 OF THE DISPUTE RESOLUTION PANEL (H EREINAFTER REFERRED TO AS THE DRP) RELEVANT TO ASSESSMENT YEAR 2007-08. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E NAMELY CAPGEMINI BUSINESS SERVICES (INDIA) LIMITED [FORMERLY KNOWN AS 'UNILEVER INDIA SHARED SERVICES LIMITED] (HEREINAFTER REFERRED TO AS THE ASSESSEE OR ASSESSEE COMPANY) FOR A PART OF A.Y 2007-08 WAS A SUBSIDIARY OF HINDUSTAN UNILEVER LIMITED (HUL), WHICH IS IN TURN A SUBSIDIARY OF UNI LEVER PLC. CBSIL, HAS ITS REGISTERED OFFICE IN MUMBAI AND CORPORATE OFFICE IN BANGALORE. CAPE GEMINI SA., FRANCE ACQUIRED 51% SHAREHOLDING IN CBSIL FROM HUL ON 11 OCTOBER 2006 (DURING THE RELEVANT AY 2007-08). PURSUANT TO THE ACQUISITION, THE NAME ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 2 OF THE COMPANY HAS BEEN CHANGED FROM UNILEVER INDI A SHARED SERVICES LIMITED TO CAPGEMINI BUSINESS SERVICES (INDIA) LI MITED WITH EFFECT FROM 14 MAY 2007. DURING A.Y 2007-08, THE ASSESSEE HAD PRI MARILY PROVIDED BUSINESS PROCESS MANAGEMENT SERVICES IN THE AREAS OF FINANCE ACCOUNTS, OPERATIONAL CONTROL ASSESSMENT, ADMINISTRATION OF FOREIGN EXCHA NGE, ONE OFF CONSULTANCY PROJECTS AND COMPETITORS INTELLECTUAL STUDY TO UNI LEVER GROUP COMPANIES. THE SERVICES RENDERED BY THE ASSESSEE HAVE BEEN IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) / BACK OFFICE SUPPORT SERVICES. CONSIDERING THAT THE UNILEVER GROUP HAD AN INDIRECT EQUITY STAKE IN EXCESS OF 26% IN THE ASSESSEE FOR THE PERIOD FROM 1 APRIL 200 6 TO 11 OCTOBER 2006, THE TRANSACTIONS BETWEEN THE ASSESSEE AND UNILEVER GROU P ENTITIES CAME UNDER THE PURVIEW OF INDIAN TRANSFER PRICING (TP) REGULATION S. THE ASSESSEE HAD SELECTED THE TRANSACTIONAL NET MA RGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD TO DETERMINE THE ARM'S LENGTH PRICE FOR THE PROVISION OF ITES TO GROUP ENTITIES AND HAD SELECTE D COMPARABLE COMPANIES RENDERING ITES FOR DETERMINATION OF ARM'S LENGTH PR ICE. BASED ON THE ANALYSIS CARRIED OUT BY THE ASSESSEE, THE INTERNATIONAL TRAN SACTIONS WERE DETERMINED AS MEETING WITH THE ARM'S LENGTH PRICE. THE ASSESSEE' S CASE WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR AY 2007-08. THE TPO PROPOSED AN ADJUSTMENT TO THE TRANSFER PRICES WITH RESPECT TO T HE PROVISION OF ITES TO THE TUNE OF RS.33,070,534/-. THE ASSESSING OFFICER (HE REINAFTER REFERRED TO AS THE AO) RELIED ON THE TPOS ORDER AND ISSUED A DRAFT ASS ESSMENT ORDER UNDER SECTION 144C(1) OF THE ACT PROPOSING THE ABOVE TP A DJUSTMENT. THE ASSESSEE FILED OBJECTIONS AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE DRP. HOWEVER, THE DRP REJECTED THE ASSESSEES OBJECTIONS NOT ONLY IN RELATION TO TRANSFER PRICING ADJUSTMENTS BUT ALSO IN RELATION TO DISALLO WANCES PROPOSED BY THE AO IN RELATION TO CLUB ENTRANCE FEE, CREDIT OF BRANCH PROFIT TAX PAID BY THE ASSESSEE IN USA AND THE EXPENDITURE INCURRED TOWARD S PURCHASE OF SOFTWARE. BEING AGGRIEVED BY THE ORDER OF THE LD. DRP, THE AS SESSEE HAS COME IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS OF APPEAL: ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 3 GROUND NO.1 - TRANSFER PRICING (TP') ADJUSTMENT O F RS.3,30,70,534 ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF TH E PRESENT CASE, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX 1(2) (HEREINA FTER REFERRED AS 'AO') AND THE DISPUTE RESOLUTION PANEL ('DRP') ERRED IN CONCLUDIN G THE ASSESSMENT BY UPHOLDING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME -TAX TRANSFER PRICING OFFICER - 1(2) (HEREINAFTER REFERRED AS 'TPO') IN DETERMINI NG THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF BUSINESS PROCESS M ANAGEMENT SERVICES RENDERED TO ASSOCIATED ENTERPRISES ('AES') AT RS. 50,99,80,5 30 INSTEAD OF RS.47,69,09,996 AS DETERMINED BY CAPGEMINI BUSINESS SERVICES (INDIA) L IMITED ('THE APPELLANT') BY: A. CONSIDERING THE APPELLANT'S TRANSACTIONS WITH OV ERSEAS UNILEVER GROUP ENTITIES, POST TRANSFER OF THE APPELLANT'S SHAREHOL DING TO CAPGEMINI GROUP FROM UNILEVER GROUP ON 11 OCTOBER 2006, AS INTERNATIONAL TRANSACTION, HAVING FAILED TO APPRECIATE THAT UNILEVER PLC'S SHAREHOLDI NG (INDIRECT) IN APPELLANT POST 11 OCTOBER 2006 FELL BELOW THE 26% L IMIT UNDER SECTION 92A(2)(A) OF THE ACT FOR THE PURPOSE OF CONSTITUTIN G AE; B. DISREGARDING THE INTERNAL COMPARABILITY ANALYSIS BETWEEN THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH OVERSEA S UNILEVER GROUP ENTITIES FOR THE PERIOD: - PRIOR TO THE ACQUISITION OF APPELLANT'S SHAREHOLD ING BY CAPGEMINI GROUP; AND - POST SUCH ACQUISITION. C. DISREGARDING THE APPELLANT'S CONTEMPORANEOUS TP DOCUMENTATION AND CONDUCTING HIS OWN COMPARABILITY ANALYSIS WHICH IS NOT IN ACCORDANCE WITH CONTEMPORANEOUS DOCUMENTATION REQUIREMENT UNDER IND IAN TP REGULATIONS, HAVING FAILED TO APPRECIATE THAT IN THE CASE UNDER CONSIDERATION, NONE OF THE CONDITIONS SET OUT IN SECTION 920(3) OF THE ACT ARE SATISFIED; D. SELECTING COMPANIES THAT ARE NOT COMPARABLE TO THE APPELLANT VIS-A-VIS ITS AES, FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE; E. USING CURRENT YEAR'S FINANCIAL DATA (I.E. FINAN CIAL YEAR 2006-07) FOR THE COMPARABLE COMPANIES FOR BENCHMARKING THE APPEL LANT'S INTERNATIONAL TRANSACTIONS PERTAINING TO BUSINESS P ROCESS MANAGEMENT SERVICES RENDERED TO AES; F. NOT GRANTING A WORKING CAPITAL ADJUSTMENT TO THE APPELLANT TO ACCOUNT FOR THE DIFFERENCES IN THE WORKING CAPITAL CYCLE OF THE COMPARABLES VIS--VIS THE APPELLANT; AND G. DENYING THE (+/-) 5% RANGE BENEFIT AVAILABLE UN DER PROVISO TO SECTION 92C(2) OF THE ACT. THE APPELLANT PRAYS THAT THE BOOK VALUE OF THE INTE RNATIONAL TRANSACTION BE HELD TO BE THE ARM'S LENGTH PRICE AND ACCORDINGLY, THE AO BE DIRECTED TO DELETE THE ADJUSTMENT OF RS. 3,30,70,534. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 4 2. CLUB ENTRANCE FEES ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF TH E PRESENT CASE, THE AO ERRED IN DISALLOWING EXPENSE OF RS. 550,000 INCURRE D TOWARDS CLUB ENTRANCE FEES. THE APPELLANT PRAYS THAT THE SUM OF RS. 550,000 BE ALLOWED AS BUSINESS EXPENSE AND THE ADDITIONS MADE BY THE AO BE DELETED . 3. TAX CREDIT IN INDIA FOR BRANCH PROFIT TAX PAID B Y THE APPELLANT IN USA ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF TH E PRESENT CASE, THE AO ERRED IN NOT ALLOWING TAX CREDIT OF BRANCH PROFIT T AX OF US$ 31,310 (EQUIVALENT TO RS.1,408,950) PAID IN USA. THE APPELLANT PRAYS THAT THE BRANCH PROFIT TAX OF U S$ 31,310 (EQUIVALENT TO RS. 1,408.950) PAID IN USA BE ALLOWED AS TAX CREDIT WHILE DETERMINING THE INDIAN INCOME-TAX LIABILITY. 4. PAYMENT TOWARDS PURCHASE OF SOFTWARE ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF TH E PRESENT CASE, THE AO HAS ERRED IN DISALLOWING EXPENDITURE OF RS. 953,437, IN CURRED FOR PURCHASE OF 'OFF THE SHELF' SOFTWARE FROM QAD SINGAPORE PTE LTD., SI NGAPORE, UNDER SECTION 40(A)(I) OF THE ACT ALLEGING THAT THE SAID EXPENDIT URE IS SUBJECT TO DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE APPELLANT PRAYS THAT THE EXPENDITURE TOWARDS PU RCHASE OF 'OFF THE SHELF' SOFTWARE BE ALLOWED. 5. ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF THE PRESENT CASE, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL (HEREINAFTER REFERRED TO AS THE A O) AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDER ED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. GROUND NO.1 3. THOUGH, THE ASSESSEE HAS RAISED VARIOUS POINTS A ND ISSUES VIDE DIFFERENT SUB GROUNDS TAKEN IN GROUND NO.1, HOWEVER, THE LD. A.R. OF THE ASSESSEE, AT THE OUTSET, HAS SUBMITTED THAT SO FAR AS THE TRANSF ER PRICING ADJUSTMENTS ARE CONCERNED, THE ASSESSEE HAD PROVIDED 12 COMPARABLES WHEREAS THE TPO ACCEPTED ONLY 4 OUT OF THOSE. THE TPO HIMSELF ADDE D 25 COMPARABLES FOR ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 5 ARRIVING AT ARM'S LENGTH PRICE FOR DETERMINING THE TRANSFER PRICING ADJUSTMENTS. THE TPO HAD ACCEPTED THE ANALYSIS OF THE ASSESSEE U SING THE TNMM AS MOST APPROPRIATED METHOD FOR DETERMINATION OF ALP OF INT ERNATIONAL TRANSACTIONS WHEREBY THE OPERATING MARGIN OF THE ASSESSEE WAS CO MPARED VIS--VIS ITS TRANSACTIONS WITH UNILEVER GROUP ENTITIES DURING TH E PERIOD PRIOR TO 11.10.06 WITH ITS OPERATING MARGIN FROM TRANSACTIONS WITH UN ILEVER ENTITIES IN POST 11.10.06 PERIOD. THIS INTERNAL COMPARISON WAS DONE BY THE TPO AS THE FUNCTIONS PROFILE OF THE ASSESSEE IN PRE AND POST SCENARIOS HAD REMAINED THE SAME. THE TPO ALSO CARRIED OUT EXTERNAL COMPARABIL ITY ANALYSIS. ACCORDING TO THE ANALYSIS REPORT GIVEN BY THE ASSESSEE THE RATIO OF OP/OC (OPERATING PROFIT/OPERATING COST) WAS GIVEN AT 19.91% WHEREAS AS PER THE COMPARABLES TAKEN BY THE TPO, THE OP/OC RATIO CAME TO 28.23%. THE SHORT CONTENTION OF THE LD. A.R. BEFORE US HAS BEEN THAT THE ASSESSEE O THERWISE WILL BE SATISFIED IF THE COMPARABLES INTRODUCED BY THE AO ARE TAKEN FOR ANALYSIS EXCEPT THE TWO I.E. MOLD-TEK TECHNOLOGIES LTD. (SCG) MENTIONED AT SL. N O.20 AND IN CASE OF VISHAL INTERNATIONAL TECHNOLOGY LTD. MENTIONED AT S L. NO.24 OF THE COMPARABLES TAKEN BY THE TPO IN HIS ORDER. HE HAS SUBMITTED THAT IF THE ABOVE TWO COMPARABLES ARE EXCLUDED, THE ARM'S LENGTH PRIC E SO ARRIVED AFTER TAKING THE OTHER COMPARABLES OF THE TPO WILL BE IN THE RANGE O F + 5% OF THE PRICE DECLARED BY THE ASSESSEE. THE LD. A.R. OF THE ASSESSEE WHILE INVITING OUR ATT ENTION TO THE BUSINESS ACTIVITY OF MOLD-TEK TECHNOLOGIES LTD. HAS POINTED OUT THAT THE SAID COMPANY HAS BEEN IN A TOTALLY DIFFERENT ACTIVITY. HE, IN T HIS RESPECT, HAS INVITED OUR ATTENTION TO PAGE 247 & PAGE 251 OF THE PAPER BOOK, WHICH ARE THE PART OF THE DIRECTORS REPORT FOR THE YEAR ENDED 31.03.07 OF MO LD-TEK TECHNOLOGIES LTD., WHEREIN IT HAS BEEN PROVIDED THAT DURING THE YEAR, THE IT DIVISION OF THE SAID COMPANY COMMENCED ENGINEERING SERVICES TO HIGH RISE BUILDINGS FOR CLIENTS IN US AND CANADA WHICH OFFERED EXCELLENT GROWTH PROSPE CTS. THE COMPANY HAD TWO DIVISIONS, ONE IS PLASTIC DIVISION AND THE OTHE R IS KPO DIVISION. KPO DIVISION DEALS WITH IT ENABLED SERVICES PROVIDING S ERVICES IN RELATION TO ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 6 DESIGNING AND DETAILING OF THE BUILDINGS APART FROM OTHER ACTIVITIES. THE LD. A.R. HAS FURTHER INVITED OUR ATTENTION TO THE SPECI AL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (IND IA) (P.) LTD. VS. ACIT (2014) 31 ITR(TRI.-1) (MUMBAI-SB). THE ASSESSEE COM PANY IN THAT CASE WAS ENGAGED IN ALMOST SIMILAR ACTIVITIES AS THAT OF THE ASSESSEE BEFORE US, I.E. SERVICES RELATING TO TRANSACTION, PROCESSING DATA E NTRY, RECONCILIATION OF STATEMENTS AND OTHER SIMILAR SUPPORT SERVICES. IN THE SAID CASE, THE AO HAD TAKEN THE SAID COMPANY MOLD-TEK TECHNOLOGIES LTD. A S COMPARABLE, HOWEVER THE SPECIAL BENCH OF THE TRIBUNAL IN PARA 81 OF TH E ORDER HAS OBSERVED THAT FROM THE ANNUAL REPORT OF THE SAID COMPANY FOR THE FINANCIAL YEAR 2007-08, IT REVEALED THAT THE SAID COMPANY WAS PROVIDING STRUCT URAL ENGINEERING KPO SERVICES AND ITS BUSINESS ACTIVITY WAS ENTIRELY DIF FERENT FROM THAT OF THE ASSESSEES BPO/KPO SERVICES PROVIDED BY THE ASSESSE E IN RELATION TO BACK OFFICE SUPPORT, DATA PROCESSING AND ANALYSIS ETC. THE RELEVANT OBSERVATIONS OF THE SPECIAL BENCH OF THE TRIBUNAL FOR THE SAKE OF C ONVENIENCE ARE REPRODUCED AS UNDER: 81. IN SO FAR AS THE CASE OF MOLD-TEK TECHNOLOGIES LTD. IS CONCERNED, IT IS OBSERVED FROM THE ANNUAL REPORT OF THE SAID COMPANY FOR THE FINANCIAL YEAR 2007-08 PLACED AT PAGE 139 TO 151 OF THE PAPER BOOK THAT TH E SAID COMPANY WAS PIONEER IN STRUCTURAL ENGINEERING KPO SERVICES AND ITS ENTI RE BUSINESS COMPRISED OF PROVIDING ONLY STRUCTURAL ENGINEERING SERVICES TO V ARIOUS CLIENTS. FURTHER INFORMATION OF MOLD-TEK TECHNOLOGIES LTD. AVAILABLE ON THEIR WEBSITE IS FURNISHED IN THE FORM OF PRINTOUT AT PAGE 158 TO 16 5 OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHOWS THAT IT IS A LEADING PROV IDER OF ENGINEERING AND DESIGN SERVICES WITH SPECIALIZATION IN CIVIL, STRUC TURAL AND MECHANICAL ENGINEERING SERVICES. IT IS STATED TO HAVE A STRONG TEAM OF SKILLED RESOURCES WITH WORLD CLASS RESOURCES AND SKILL SETS. IT IS AL SO STATED TO HAVE CONSISTENTLY HELPED THE CLIENTS TO CUT DOWN DESIGN AND DEVELOPME NT COSTS OF CIVIL, STRUCTURAL, MECHANICAL AND PLANT DESIGN BY 30-40% AND DELIVERED TECHNOLOGICALLY SUPERIOR OUTPUTS TO MATCH AND EXCEED EXPECTATIONS. IT IS CLA IMED TO HAVE IN-HOUSE SOFTWARE DEVELOPMENT TEAM, QUALITY CONTROL TRAINING AND TROU BLE SHOOTING FACILITIES. M/S MOLD-TEK IS ALSO RENDERING WEB DESIGN AND DEVELOPME NT SERVICES WITH EXPERIENCE IN TURNING THEM INTO AN EFFECTIVE GRAPHIC DESIGN RE PRESENTATION AND CREATING DYNAMIC AND GRAPHIC RICH WEB APPLICATIONS FROM IT S PECS, DESIGN PRINTS ETC. KEEPING IN VIEW THIS INFORMATION AVAILABLE IN THE A NNUAL REPORT OF MOLD-TEK AS WELL ON ITS WEBSITE, WE ARE OF THE VIEW THAT THE SA ID COMPANY IS MAINLY INVOLVED IN PROVIDING HIGH-END SERVICES TO ITS CLIENTS INVOLVIN G HIGHER SPECIAL KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT BE TAKEN AS COMPARABLE TO THE ASSESSEE COMPANY WHICH IS MAIN LY INVOLVED IN PROVIDING ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 7 LOW-END SERVICES. 4. A PERUSAL OF THE RECORD REVEALS THAT THE BUSINES S ACTIVITY OF THE MOLD- TEK TECHNOLOGIES LTD. AND THAT OF THE ASSESSEE ARE ENTIRELY DIFFERENT. THE SCOPE OF PROFIT AND MARGINS OWING TO THE DIFFERENT NATURE OF SERVICES OFFERED BY THE ASSESSEE AND MOLD-TEK TECHNOLOGIES LTD. MAY ALS O BE DIFFERENT. THE MOLD-TEK TECHNOLOGIES LTD. IS PROVIDING HIGH END SE RVICES IN STRUCTURAL ENGINEERING. AT THIS STAGE, THE LD. A.R. HAS INVIT ED OUR ATTENTION TO PAGE 251 OF THE PAPER BOOK TO CONTEND THAT THE MOLD-TEK TECH NOLOGIES LTD. IS ALSO ENGAGED IN PROVIDING HEALTHCARE BILLING SERVICES. MAY IT BE SO, THE POINT RAISED BY THE LD. AR IS THAT THE NATURE OF SERVICES PROVIDED BY MOLD-TEK TECHNOLOGIES LTD. ARE ENTIRELY DIFFERENT FROM THAT OF THE ASSESSEE. THE ASSESSEES SERVICES ARE MAINLY RELATING TO DATA ANA LYSIS AND BACK UP OFFICE SUPPORT SERVICES WHICH DO NOT REQUIRE MUCH INVOLVEM ENT OF HIGH SKILLED KNOWLEDGE PROCESS AND EXPENSE WHEREAS, IN CASE OF M OLD-TEK TECHNOLOGIES LTD. THE NATURE OF SERVICES, ITSELF, REVEALS THAT T HE SAME INVOLVED HIGH-TECH SKILLS, DOMAIN KNOWLEDGE AND EXPERIENCE OF HIGHLY S KILLED AND PROFESSIONALS/ PERSONS AND THAT THE PROFIT MARGIN IN SUCH TYPE OF SKILLED SERVICES WILL BE HIGHER. WE AGREE WITH THE FINDING OF THE SPECIAL BENCH OF T HE TRIBUNAL WHEN WE COMPARE THE CASE OF THE ASSESSEE WITH THAT OF MOLD- TEK TECHNOLOGIES LTD. THAT THE MOLD-TEK CANNOT BE TAKEN AS A COMPARABLE TO DET ERMINE ARM'S LENGTH PRICE IN CASE OF TRANSACTIONS OF ASSESSEE WITH ITS ASSOCI ATE ENTERPRISES. THE SECOND OBJECTION PRESSED BY THE ASSESSEE IS IN RELATION TO VISHAL INTERNATIONAL TECHNOLOGY LTD. PLEADING THAT THE SAM E CANNOT BE CONSIDERED AS A COMPARABLE FOR THE PURPOSE OF CALCULATING THE BENCH MARK OPERATING PROFIT MARGIN ON THE GROUND THAT THE BUSINESS MODEL OF THE SAID COMPANY WAS DIFFERENT. IT WAS CONTENDED THAT VISHAL INTERNATIO NAL TECHNOLOGY LTD. WAS ENGAGED IN THE SERVICES OF DATA ANALYTICS AND PROVI DING DATA SERVICES SOLUTIONS. HOWEVER, THE EMPLOYEES SALARY COST OF VISHAL INTER NATIONAL TECHNOLOGY LTD. WAS RELATIVELY VERY LOW AS COMPARED TO THAT OF THE ASSESSEE. THE VISHAL ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 8 INTERNATIONAL TECHNOLOGY LTD. HAD OUTSOURCED SIGNIF ICANT PARTS OF OPERATIONS AND DID NOT HAVE SO MUCH EMPLOYEES SALARY COST AS WAS IN THE CASE OF THE ASSESSEE AND THEREFORE THE BUSINESS MODEL OF THE VI SHAL INTERNATIONAL TECHNOLOGY LTD. WAS DIFFERENT. THE LD. A.R. HAS RE LIED IN THIS RESPECT TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT IN ITA NO.102 OF 2015 DECIDED VI DE ORDER DATED 10.08.15. THE BUSINESS MODEL OF THE VISHAL INTERNATIONAL TECH NOLOGY LTD. BEING DIFFERENT ON THE GROUND THAT IT WAS INDULGED IN OUT SOURCING OF ITS OPERATIONS HAS NOT ONLY BEEN CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNA L BUT ALSO BY THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTION S PVT. LTD. (SUPRA). 5. CONSIDERING THE ABOVE FACTS ON THE FILE AND THE SUBMISSIONS MADE BY THE LD. REPRESENTATIVES OF THE PARTIES, IN OUR VIEW, TH E MOLD-TEK TECHNOLOGIES LTD. AND VISHAL INTERNATIONAL TECHNOLOGY LTD. CANNO T BE TAKEN AS COMPARABLES. 6. WE, ACCORDINGLY, DIRECT THE AO TO EXCLUDE VISHAL INTERNATIONAL TECHNOLOGY LTD. AND MOLD-TEK TECHNOLOGIES LTD. WHIL E DETERMINING THE ARM'S LENGTH PRICE OF THE ASSESSEE RELATING TO THE TRANSA CTIONS WITH ITS AES. THIS ISSUE IS DECIDED ACCORDINGLY. GROUND NO.2 7. GROUND NO.2 IS RELATING TO CLUB ENTRANCE FEES. THE AO DISALLOWED THE EXPENSES OF RS.5,50,000/- INCURRED TOWARDS CLUB ENT RANCE FEES ON THE GROUND THAT THE ASSESSEE HAS MADE A CLAIM THAT THE SPECIAL MEMBERSHIP WOULD HELP IN BUILDING BETTER RELATIONSHIP WITH CLIENTS WITHOUT SUBMITTING ANY COGENT EVIDENCE IN THIS RESPECT. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE SAME WAS A CORPORATE MEMBERSHIP AND THE CO MPANY HAD NOMINATED TWO OF ITS EMPLOYEES I.E. CEO AND CHIEF ENGINEER OP ERATIONS FOR AVAILING THE MEMBERSHIP FACILITIES. HE HAS FURTHER INVITED OUR ATTENTION TO THE FULL BENCH DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. GROZ BECKERT ASIA LTD. REPORTED AS (2013) 351 ITR 196 P&H (FB), WHEREIN, ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 9 THE HONBLE HIGH COURT HAS HELD THAT NO CAPITAL ASS ET IS CREATED OR COMES INTO EXISTENCE ON ACCOUNT OF OBTAINING CORPORATE MEMBERS HIP. THE CORPORATE MEMBERSHIP OBTAINED WAS FOR A LIMITED PERIOD AND IT WAS OBTAINED FOR RUNNING THE BUSINESS WITH A VIEW TO PRODUCE PROFIT AND THE SAID CORPORATE MEMBERSHIP FEE PAID TO THE CLUB WAS TO BE TREATED AS REVENUE E XPENDITURE. RELYING ON THE SAID THE FULL BENCH DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT, THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.3 8. VIDE GROUND NO.3, THE ASSESSEE HAS AGITATED THE ACTION OF THE LOWER AUTHORITIES IN NOT ALLOWING TAX CREDIT OF BRANCH PR OFIT TAX PAID IN USA. THE LOWER AUTHORITIES, IN THIS RESPECT, HAVE RELIED UPO N ARTICLE 2 OF THE INDO US DTAA (DOUBLE TAXATION AVOIDANCE AGREEMENT), WHEREIN , THE TAXES COVERED UNDER THE TREATY IN THE UNITED STATES INTER ALIA ARE THE FEDERAL INCOME TAXES IMPOSED BY THE US INTERNAL REVENUE CODE BUT EXCLU DING THE ACCUMULATED EARNING TAX, THE PERSONAL HOLDING TAX AND SOCIA L SECURITY TAXES ETC. THE CONTENTION OF THE LOWER AUTHORITIES IS THAT THE BR ANCH HOLDING TAX IS AKIN TO THE ACCUMULATED EARNING TAX WHICH HAS BEEN SPECIFICAL LY EXCLUDED FROM THE TAXES COVERED UNDER THE DTAA. THE LD. A.R. OF THE ASSESS EE, HOWEVER, BROUGHT OUR ATTENTION TO PAGE 1161 OF THE PAPER BOOK WHICH IS T HE COPY OF SECTION 531 OF THE US INTERNAL REVENUE CODE WHICH IS RELATING TO THE IMPOSITION OF ACCUMULATED EARNING TAX. HE HAS FURTHER INVITED OU R ATTENTION TO SECTION 884 OF THE INTERNAL REVENUE CODE WHICH DEALS WITH THE BR ANCH PROFIT TAX. HE, IN THIS RESPECT, HAS ARGUED THAT THE ACCUMULATED EARNING T AX AND THE BRANCH PROFIT TAX ARE THE DIFFERENT TAXES WHICH HAVE BEEN DEALT BY DIFFERENT SECTIONS. SECTION 531 OF THE INTERNAL REVENUE CODE DEALS WITH IMPOSITION OF ACCUMULATED EARNING TAX, WHEREAS, SECTION 884 DEA LS WITH BRANCH PROFIT TAX. THE LD. A.R. HAS FURTHER INVITED OUR ATTENTION TO P AGE 1167 OF THE PAPER BOOK WHICH IS THE OFFICIAL TECHNICAL EXPLANATION OF THE CONVENTION AND PROTOCOL BETWEEN THE US AND INDIA. THIS TECHNICAL EXPLANAT ION IS AN OFFICIAL GUIDE TO ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 10 THE CONVENTION/DTAA. THE SCOPE OF ARTICLE II RELAT ING TO TAXES COVERED HAS BEEN EXPLAINED IN THE SAID GUIDE/TECHNICAL EXPL ANATION. IT HAS BEEN SPECIFICALLY PROVIDED THAT THE TAXES COVERED IN THE CASE OF US, AS INDICATED IN PARAGRAPH 1(A) OF ARTICLE II, ARE THE FEDERAL INCOM E TAXES IMPOSED BY THE CODE, TOGETHER WITH THE EXCISE TAX IMPOSED ON INSURANCE P REMIUMS PAID TO FOREIGN INSURERS (CODE SECTION 4371). THE ARTICLE SPECIFIE S THAT THE CONVENTION DOES NOT APPLY TO THE ACCUMULATED EARNING TAX (CODE SECT ION 531), THE PERSONAL HOLDING COMPANY TAX (CODE SECTION 541) OR THE SOCIA L SECURITY TAXES (CODE SECTIONS 1401, 3101 AND 3111). STATE AND LOCAL TAX ES IN THE UNITED STATES ARE ALSO NOT COVERED BY THE CONVENTION. A PERUSAL OF T HE ARTICLE II OF THE DTAA READ WITH THE TECHNICAL EXPLANATION TO THE CONVENT ION REVEALS BEYOND DOUBT THAT THE TAXES WHICH HAVE BEEN EXCLUDED FROM THE PU RVIEW OF THE DTAA HAVE BEEN SPECIFICALLY MENTIONED THEREIN. FURTHER, AS O BSERVED ABOVE, THE ACCUMULATED EARNING TAX, WHICH HAS BEEN PROVIDED UN DER SECTION 531 OF THE INTERNAL REVENUE CODE OF THE US, IS DIFFERENT FROM BRANCH PROFIT TAX WHICH IS DEALT WITH UNDER SEPARATE SECTION 884. THE SECTIO N 884 DEALING WITH BRANCH PROFIT TAX HAS NOT BEEN SPECIFICALLY EXCLUDED FROM THE DTAA AND THUS BEING A PART OF THE INTERNAL REVENUE CODE IS COVERED BY THE US TREATY. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.4 9. GROUND NO.4 IS IN RELATION TO DISALLOWANCE OF EX PENDITURE OF RS.9,53,437/- INCURRED FOR PURCHASE OF OFF THE SHE LF SOFTWARE FROM QAD SINGAPORE PVT. LTD. UNDER SECTION 40(A)(I) OF THE ACT ON THE GROUND THAT THE SAID EXPENDITURE WAS SUBJECT TO DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAD INCU RRED EXPENSES IN FOREIGN CURRENCY FOR THE PURCHASE OF SOFTWARE FROM QAD SING APORE PVT. LTD. THE CASE OF THE ASSESSEE HAS BEEN THAT IT HAD NOT PURCHASED ANY COPYRIGHT IN THE SOFTWARE RATHER, IT HAD PURCHASED ONLY A COPYRIGHTED ARTICLE NAMED AS MFG PRO SOFTWARE. THE AO, HOWEVER, OBSERVED THAT THE ASSE SSEE HAD PURCHASED THE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 11 RIGHT TO USE THE SOFTWARE AND THE SOFTWARE IS USED FOR THE BUSINESS PURPOSE IN INDIA. HE, THEREFORE, HELD THAT THE SAME WAS LIABL E FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT IN VIEW OF THE PROVISIONS OF SECTION 9 OF THE INCOME TAX ACT, WHEREIN IT HAS BEEN PROVIDED TH AT THE INCOME ON ACCOUNT OF CONSIDERATION PAID FOR ROYALTY IS TO BE DEEMED T O HAVE ACCRUED IN INDIA. 10. BEFORE THE DRP, THE ASSESSEE ADDUCED EVIDENCE I N THE FORM OF INVOICE AND OTHER DOCUMENTS/MATERIAL IN RESPECT OF THE SOFTWARE PURCHASED TO PROVE THAT THE SAID SOFTWARE HAS BEEN STANDARD SOFTWARE A ND THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE SAID SOFTWARE WAS A ONETIME PAYMENT AND NOT A RECURRING PAYMENT FOR USE OF SOFTWARE. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT WHAT IT HAD PURCHASED WAS A COPYRIGHTED ARTIC LE AND NOT THE COPYRIGHT, ITSELF, SO AS TO CLASSIFY IT AS ROYALTY OR FEES FOR TECHNICAL SERVICES. IN PARA 7.3 OF THE IMPUGNED ORDER, THE DRP, AFTER P ERUSAL OF THE DOCUMENTS SUBMITTED BY THE ASSESSEE, HAS HELD THAT THE SOFTWARE PURCHASED WAS A ONE OFF THE SHELF PRODUCT . HOWEVER, THE DRP FURTHER OBSERVED THAT THE SOFTWARE WAS NOT SOLD BUT A LICEN SE WAS GIVEN TO THE ASSESSEE TO USE IT IN A PARTICULAR MANNER IN CONSIDERATION O F THE LICENSE FEE. EVEN AFTER OBTAINING A COPY OF THE SOFTWARE, THE ASSESSEE REQU IRED PERMISSION TO USE THE SOFTWARE BY WAY OF ACTIVATION ON A CERTIFIED MACHIN E. THEREFORE, PAYMENT MADE BY THE END USER WAS TOWARDS LICENSE TO USE COP YRIGHT IN SOFTWARE AND NOT FOR SALE OF SOFTWARE. THE DRP, THEREFORE, HELD THA T THE LICENSE TO USE THE SOFTWARE WOULD FALL UNDER THE PURVIEW OF ROYALTY. BEING AGGRIEVED BY THE ABOVE FINDING OF THE DRP, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE AL SO GONE THROUGH THE RECORDS. THE LD. A.R. OF THE ASSESSEE HAS CONTENDED THAT MFG PRO SOFTWARE PURCHASED BY THE ASSESSEE IS AN ACCOUNTING SOFTWARE AND IS AVAILABLE OFF THE SHELF. QAD SINGAPORE PVT. LTD. SUPPLIED THE SAID S OFTWARE TO THE ASSESSEE COMPANY OUTSIDE INDIA ON A COMPUTER DISK WITH FREE ON BOARD BASIS AND FURTHER THAT THE SAID ENTITY DOES NOT HAVE A PERMANENT ESTA BLISHMENT IN INDIA. HE, ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 12 THEREFORE, HAS CONTENDED THAT THE SAID DISK PURCHAS ED BY THE ASSESSEE WOULD FALL IN THE DEFINITION OF GOODS AS DEFINED IN THE SAL E OF GOODS ACT AND THE CONSIDERATION PAID IS THE SALE PRICE OF THE GOODS A ND NOT THE ROYALTY AND HENCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON THE PA YMENT FOR THE PURCHASE OF GOODS FROM THE FOREIGN COMPANY AS THE SAME WAS BUSI NESS INCOME IN THE HANDS OF THE RECIPIENT AND NOT THE ROYALTY. THE LD. A.R. OF THE ASSESSEE, IN THIS RESPECT HAS RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LTD. (2013) 39 TAXMANN. COM 88 (DEL.) AND FURTHER ON ANOTHER DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. ERICSON A.B. (2012) 343 ITR 470. 12. ON THE OTHER HAND, THE LD. D.R., RELYING UPON T HE DECISIONS OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REL IANCE INFOCOM LTD. AND IN SPECIFIC RELYING ON PARA 29, 35 & 36 OF THE SAID DE CISION, HAS CONTENDED THAT THE SOFTWARE PURCHASED BY THE ASSESSEE WAS A SEPARA TE SOFTWARE AND THE SAME WAS NOT SUPPLIED ALONG WITH THE EQUIPMENTS AND THAT THE SAME WAS NOT AN EMBEDDED SOFTWARE IN THE COMPUTER/EQUIPMENT. THE AS SESSEE WAS NOT THE OWNER OF THE SOFTWARE, THE OWNERSHIP OF THE SOFTWAR E HAD REMAINED WITH THE OWNER; THE ASSESSEE WAS JUST A GIVEN LICENSE TO USE THE SOFTWARE WHICH WAS THE RIGHT TO USE OF COPYRIGHT IN THE SOFTWARE. THE TRIB UNAL IN THE SAID DECISION (SUPRA) HAS RELIED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS COMPANY LT D. & OTHERS (2012) 345 ITR 494 AND UPON ANOTHER DECISION OF THE HONBLE KA RNATAKA HIGH COURT IN THE CASE OF CIT VS. SYNOPSIS INTERNATIONAL OLD LTD . (2013) 212 TAXMAN 454. THE LD. DR IN THIS RESPECT HAS RELIED UPON THE AMEN DED DEFINITION OF THE ROYALITY U/S 9 OF THE INCOME TAX ACT. IT IS PERTI NENT TO MENTION HERE THAT VIDE AMENDMENT ACT OF 2012, EXPLANATION 4 HAS BEEN ADDED TO SECTION 9(1)(VI) OF THE ACT WITH RETROSPECTIVE EFFECT INCLUDING THE SOF TWARE IN THE DEFINITION OF ROYALTY. THE LD. DR HAS STATED THAT THE DEFINITION OF ROYALTY UNDER THE ACT IS PARAMETRIA WITH THAT OF THE TREATY, THEREFORE, THE SAME IS TO BE READ INTO THE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 13 DEFINITION OF TREATY AS PROVIDED IN THE DTAA FOR DE TERMINING THE TAX LIABILITY OF THE ASSESSEE IN THIS RESPECT. THE CONTENTION OF THE LD. AR, ON THE OTHER HAND IS THAT THE DEFINITION OF ROYALTY, SINCE PROVIDED IN T HE DTAA IS TO BE LOOKED INTO ONLY AND THAT THE DEFINITION, IF ANY, PROVIDED UNDE R THE ACT IS TO BE IGNORED. 13. AFTER HEARING THE LD. REPRESENTATIVES OF THE PA RTIES, THE FIRST AND FOREMOST QUESTION FOR ADJUDICATION BEFORE US IS AS TO WHETHER THE DEFINITION OF ROYALTY AS PROVIDED UNDER THE INCOME TAX ACT IS T O BE TAKEN OR THAT WHICH HAS BEEN PROVIDED IN THE DTAA WITH SINGAPORE. 14. THE LD. D.R. AT THIS STAGE RELYING UPON THE DEC ISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VRIZON COMMUNICAT ION SINGAPORE VS. ITO 361 ITR 0575 (MAD.) HAS CONTENDED THAT IN PARA 100 OF THE SAID DECISION, THE HONBLE MADRAS HIGH COURT HAS OBSERVED THAT THE DEF INITION OF ROYALTY UNDER DTAA AND THE INDIAN INCOME TAX ARE IN PARAMATERIA. HE HAS FURTHER STATED THAT THE SAID DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF VRIZON COMMUNICATION SINGAPORE (SUPRA) HAS BEEN FOLLOWED BY THE MUMBAI BENCH OF THE TRIBUNAL IN VIACOM 18 MEDIA PVT. LTD. VS. A DIT (INTERNATIONAL TAXATION) REPORTED IN (2014) 44 TAXMAN.COM 1 (MUMBA I). HE, THEREFORE, HAS VEHEMENTLY CONTENDED THAT THE DEFINITION OF ROYALTY AS PROVIDED UNDER THE VARIOUS CLAUSES AND EXPLANATIONS OF SECTION 9 OF TH E INCOME TAX ACT SHOULD BE ADOPTED. HE, IN THIS RESPECT, HAS STATED THAT THE EXPLANATION 4 TO SECTION 9(1) (VI), INTRODUCED VIDE AMENDMENT ACT OF 2012, IS CL ARIFICATORY IN NATURE UNDER WHICH THE SOFTWARE HAS BEEN SPECIFICALLY INCLUDED I N THE DEFINITION OF ROYALTY, AND IT SHOULD BE READ ALONG WITH THE DEFINITION OF ROYALTY AS PROVIDED UNDER THE DTAA. HE THEREFORE HAS CONTENDED THAT THE CONSIDERA TION PAID BY THE ASSESSEE FOR THE USE OF SOFTWARE IS TO BE TREATED AS ROYALTY . ON THE OTHER HAND THE CONTENTION OF THE LD. AR OF T HE ASSESSEE HAS BEEN THAT IF THE PROVISIONS OF DTAA ARE MORE BENEFICIAL TO THE A SSESSEE THEN THE SAME WOULD PREVAIL OVER THE PROVISIONS OF THE INCOME TAX ACT AS PROVIDED UNDER SECTION 90 OF THE INCOME TAX ACT. HE, IN THIS RESPE CT, HAS RELIED UPON THE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 14 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 607. 15. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES IN THIS RESPECT. WE HAVE ALSO GONE THROUGH THE RELEVA NT DEFINITIONS AS PROVIDED UNDER THE DTAA AND UNDER THE INCOME TAX ACT. SO FA R AS THE DEFINITION OF ROYALTY AS PROVIDED UNDER SECTION 9(1)(VI)OF THE IN COME TAX ACT IS CONCERNED, THE RELEVANT PART OF THE SAID PROVISION IS REPRODUC ED AS UNDER: SECTION 9(1) (VI) INCOME BY WAY OF ROYALTY PAYABLE BY (A) THE GOVERNMENT ; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE R OYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTI LISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE IND IA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA ; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE ROYA LTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTI LISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA : PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHAL L APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SU M CONSIDERATION FOR THE TRANSFER OUTSIDE INDIA OF, OR THE IMPARTING OF INFORMATION O UTSIDE INDIA IN RESPECT OF, ANY DATA, DOCUMENTATION, DRAWING OR SPECIFICATION RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY, IF SUCH INCOME IS PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE TH E 1ST DAY OF APRIL, 1976, AND THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT : PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CLA USE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER SOFTWARE SUPPL IED BY A NON-RESIDENT MANUFACTURER ALONG WITH A COMPUTER OR COMPUTER-BASE D EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWA RE EXPORT, SOFTWARE DEVELOPMENT AND TRAINING, 1986 OF THE GOVERNMENT OF INDIA. EXPLANATION 1.FOR THE PURPOSES OF THE FIRST PROVIS O, AN AGREEMENT MADE ON OR AFTER THE 1ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPR OVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE; SO, HOWEVER, THAT, WHE RE THE RECIPIENT OF THE INCOME BY WAY OF ROYALTY IS A FOREIGN COMPANY, THE AGREEMENT SHALL NOT BE DEEMED TO HAVE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 15 BEEN MADE BEFORE THAT DATE UNLESS, BEFORE THE EXPIR Y OF THE TIME ALLOWED UNDER SUB- SECTION (1) OR SUB-SECTION (2) OF SECTION 139 (WHET HER FIXED ORIGINALLY OR ON EXTENSION) FOR FURNISHING THE RETURN OF INCOME FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1977, OR THE ASSESSMENT YE AR IN RESPECT OF WHICH SUCH INCOME FIRST BECOMES CHARGEABLE TO TAX UNDER THIS A CT, WHICHEVER ASSESSMENT YEAR IS LATER, THE COMPANY EXERCISES AN OPTION BY FURNISHIN G A DECLARATION IN WRITING TO THE ASSESSING OFFICER (SUCH OPTION BEING FINAL FOR THAT ASSESSMENT YEAR AND FOR EVERY SUBSEQUENT ASSESSMENT YEAR) THAT THE AGREEMENT MAY BE REGARDED AS AN AGREEMENT MADE BEFORE THE 1ST DAY OF APRIL, 1976. EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'RO YALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UND ER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DES IGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL ; (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMME RCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44 BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WOR K INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR T HE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB- CLAUSES (I) TO (IV), (IVA) AND (V). EXPLANATION 3.FOR THE PURPOSES OF THIS CLAUSE, 'CO MPUTER SOFTWARE' MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERF ORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE AND INCLUDES ANY SUCH PR OGRAMME OR ANY CUSTOMIZED ELECTRONIC DATA. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 16 EXPLANATION 4.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR US E OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPEC TIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. EXPLANATION 5.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT THE ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN R ESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT (A) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPE RTY OR INFORMATION IS WITH THE PAYER; (B) SUCH RIGHT, PROPERTY OR INFORMATION IS USED D IRECTLY BY THE PAYER; (C) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFOR MATION IS IN INDIA. EXPLANATION 6.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT THE EXPRESSION 'PROCESS' INCLUDES AND SHALL BE DEEMED TO HAVE ALWA YS INCLUDED TRANSMISSION BY SATELLITE (INCLUDING UP-LINKING, AMPLIFICATION, CON VERSION FOR DOWN-LINKING OF ANY SIGNAL), CABLE, OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY, WHETHER OR NOT SUCH PROCESS IS SECRET; 16. THE DEFINITION OF ROYALTY AS PROVIDED IN THE DTAA OF INDIA WITH SINGAPORE, FOR THE SAKE OF CONVENIENCE AND COMPARIS ON, IS ALSO REPRODUCED AS UNDER: ARTICLE 12(3) THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE : A. ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFI C WORK, INCLUDING CINEMATOGRAPH FILM, OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROA DCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, O R FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, IN CLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT, PROPERTY OR INFORMATI ON; B. ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPME NT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE FROM ACTIVITIES DESCRIBED IN PARAG RAPH 4(B) OR 4(C) OF ARTICLE 8. 17. WE FURTHER FIND THAT IN THE VARIOUS TREATIES WI TH DIFFERENT COUNTRIES, THE ARTICLE 12 THEREIN, GENERALLY, DEALS WITH THE PAYME NTS IN RESPECT OF ROYALTIES AND ALMOST IDENTICAL/SIMILAR DEFINITION HAS BEEN PR OVIDED IN VARIOUS TREATIES WITH VARIOUS OTHER COUNTRIES. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 17 18. A COMPARISON OF THE DEFINITION OF ROYALTY AS PROVIDED UNDER THE DTAA (AS REPRODUCED ABOVE) WITH THE DEFINITION OF ROYAL TY AS PROVIDED UNDER INCOME TAX ACT SHOWS THAT THE SAME ARE NOT AT PARAM ATERIA WITH EACH OTHER. THE DEFINITION PROVIDED UNDER THE DTAA IS THE VERY SHORT AND RESTRICTIVE DEFINITION, WHEREAS, THE DEFINITION OF THE ROYALTY AS PROVIDED UNDER THE INCOME TAX ACT IS A VERY WIDE AND INCLUSIVE BUT VAGUE. A CAREFUL READING OF THE RELEVANT PROVISION UNDER THE DTAA AND UNDER THE INC OME TAX ACT REVEALS THAT THE DTAA COVERS ONLY A PART OF THE ITEMS MENTIONED UNDER SUB CLAUSE (I) TO (V) TO EXPLANATION 2 TO SECTION 9(1)(VI). WE MAY MENTI ON HERE THAT THE SECTION 9(1)(VI) HAVING SUB CLAUSES (A), (B), & (C) IS VER Y VAST TO COVER CONSIDERATION PAID FOR ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSE OF BUSINESS OR PROFESSION. FURTHER, WE FIN D THAT IN THE SAID SUB CLAUSES (A), (B) & (C) OF SECTION 9(1) (VI), THE WORDING IS SOMEWHAT VAGUE AND NEGATIVELY WRITTEN. EVEN, IF WE APPLY AND READ THE NEGATIVELY WRITTEN WORDING IN CLAUSE (C) IN RELATION TO A PAYMENT MADE BY A NO N RESIDENT INTO THE CLAUSE (B), I.E. IN RELATION TO PAYMENT MADE BY A RESIDENT INDIAN AND READ THE CLAUSE(B) IN TERMS OF CLAUSE(C), EVEN THEN WHAT THE ROYALTY MAY CONSTITUTE WILL BE THE INCOME PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSE OF BUSINESS OR PR OFESSION BY SUCH RESIDENT TO A NON RESIDENT. HOWEVER, VIDE EXPLANATION 2 THE VAST DEFINITION PROVIDED IN SUB CLAUSES (A), (B) & (C) OF SECTION 9(1) (VI), HAVE B EEN RESTRICTED ONLY TO THE CONSIDERATION PAID FOR THE ITEMS AS MENTIONED (I) T O (VI) OF EXPLANATION 2. HOWEVER, EXPLANATION 4 INSERTED BY FINANCE ACT, 2 012, PROVIDES THAT THE TRANSFER OF RIGHTS IN RESPECT OF ANY RIGHT, PROPERT Y OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED THE RIGHT FOR USE OR RIGHT TO U SE A COMPUTER SOFTWARE INCLUDING GRANTING OF A LICENSE. WE FIND THAT SO FAR AS INCOME TAX ACT IS CONCERNED, COMPUTER SOFTWARE HAS NEITHER BEEN INC LUDED NOR IS DEEMED TO BE INCLUDED WITHIN THE SCOPE OR DEFINITION OF L ITERARY WORK IN ANY DEFINITION OR EXPLANATION PROVIDED UNDER THE ACT. THE TERM LITERARY WORK HAS BEEN SEPARATELY MENTIONED UNDER CLAUSE (V) TO E XPLANATION 2 TO INCLUDE THE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 18 CONSIDERATION PAID FOR THE SAME WITHIN THE SCOPE OF ROYALTY, WHEREAS, THE TERM COMPUTER SOFTWARE HAS BEEN SPECIFICALLY INCLUDED, NOT UNDER THE CLAUSE (V) TO EXPLANATION 2, BUT, UNDER THE MAIN CLAUSE (VI) TO SECTION 9(1). HENCE, THE COMPUTER SOFTWARE HAS BEEN RECOGNIZED AS A SEPARATE ITEM NOT ONLY IN 2ND PROVISO TO CLAUSE (VI) BUT IN EXPLANATI ON 4 ALSO AND HAS BEEN INCLUDED IN THE DEFINITION AND WITHIN THE SCOPE OF THE WORDS RIGHT, PROPERTY OR INFORMATION. THE SAME HAS NOT BEEN INCLUDED IN THE MEANING AND SCOPE OF THE TERM LITERARY WORK UNDER CLAUSE (V) TO EXPLANATION 2. IT IS TO BE FURTHER NOTED THAT THE CONSIDERATION PA ID FOR COMPUTER SOFTWARE HAS NOT BEEN SPECIFICALLY INCLUDED UNDER THE DEFINITION OF ROYALTY UNDER THE DTAA. 19. UNDER THE CIRCUMSTANCES, THE CONTENTION OF THE LD. D.R. THAT THE DEFINITION OF ROYALTY AS UNDER THE INCOME TAX ACT I S IN PARAMATERIA AS UNDER THE DTAA CAN NOT BE ACCEPTED AS IT IS APPARENT THAT THE DEFINITION UNDER THE DTAA IS SHORT AND RESTRICTIVE WHEREAS THE DEFINITIO N UNDER THE INCOME TAX ACT IS WIDE, INCLUSIVE AND EXTENDED. SINCE THE DEFINIT ION PROVIDED UNDER THE ROYALTY IN THE DTAA IS MORE BENEFICIAL TO THE ASSES SEE, HENCE AS PER THE PROVISIONS OF SECTION 90, THE DEFINITION OF ROYALTY AS PROVIDED UNDER DTAA IS TO BE TAKEN. SO FAR AS THE RELIANCE OF THE LD. D.R. ON THE DECIS ION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VRIZON COMMUNICATION SIN GAPORE (SUPRA) AND OF THE MUMBAI TRIBUNAL IN THE CASE OF VIACOM 18 MEDIA PVT. LTD. (SUPRA) IS CONCERNED, WE FIND THAT THE SAID DECISIONS HAVE BEE N RENDERED IN CONTEXT OF SOME OTHER ITEM RELATING TO THE CONSIDERATION PAID FOR TRANSPONDER/BAND WIDTH/TELECOM SERVICES. IN THAT CONTEXT, THE HONB LE MADRAS HIGH COURT HAS INTERPRETED THE RIGHT TO USE THE EQUIPMENT AND TH E WORD PROCESS APPLYING THE DOMESTIC LAW, DEFINITION OF WHICH WAS NOT AVAILABLE IN THE DTAA. HOWEVER, IN THIS CASE, WE HAVE TO DEFINE THE TERM LITERARY WORK, THE TERM COPYRIGHT; ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 19 THE DEFINITIONS OF THE SAME ARE NOT AVAILABLE UNDER THE INCOME TAX ACT, RATHER, THE SAME ARE AVAILABLE UNDER THE COPYRIGHT ACT, 195 7. 20. MOREOVER, THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS NOKIA NETWORKS OY [2012] TAXMANN.COM 225 (DELHI) HAS HEL D THAT THOUGH EXPLANATION 4 WAS ADDED TO SECTION 9(1)(VI) BY THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 TO PROVIDE THAT ALL CONSIDERATION FOR USER OF SOFTWARE SHALL BE ASSESSABLE AS ROYALTY, THE DEFI NITION IN THE DTAA HAS BEEN LEFT UNCHANGED. IN SIEMENS AG 310 ITR 320 (BOM), IT WAS HELD THAT AMENDMENTS CANNOT BE READ INTO THE TREATY. AS THE A SSESSEE HAS OPTED TO BE ASSESSED BY THE DTAA, THE CONSIDERATION CANNOT BE A SSESSED AS ROYALTY DESPITE THE RETROSPECTIVE AMENDMENTS TO THE ACT. TH E RELEVANT FINDINGS OF THE HONBLE DELHI HIGH COURT AS GIVEN IN PARA 23 OF THE SAID DECISION, FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: THE DECISION OF THE DELHI BENCH OF THE ITAT HAS DE ALT WITH THIS ASPECT IN ITS JUDGMENT IN GRACEMAC CO. VS. ADIT 134 TTJ (DELHI) 2 57 POINTING OUT THAT EVEN SOFTWARE BOUGHT OFF THE SHELF, DOES NOT CONSTITUTE A COPYRIGHTED ARTICLE AS SOUGHT TO BE MADE OUT BY THE SPECIAL BENCH OF THE ITAT IN THE PRESENT CASE. HOWEVER, THE ABOVE ARGUMENT MISSES THE VITAL POINT NAMELY THE AS SESSEE HAS OPTED TO BE GOVERNED BY THE TREATY AND THE LANGUAGE OF THE SAID TREATY DIFFERS FROM THE AMENDED SECTION 9 OF THE ACT. IT IS CATEGORICALLY H ELD IN CIT VS. SIEMENS AKTIONGESELLSCHAFT, 310 ITR 320 (BOM) THAT THE AMEN DMENTS CANNOT BE READ INTO THE TREATY. ON THE WORDING OF THE TREATY, WE HAVE A LREADY HELD IN ERICSSON (SUPRA) THAT A COPYRIGHTED ARTICLE DOES NOT FALL WITHIN THE PURVIEW OF ROYALTY. 21. FURTHER, IN A RECENT JUDGMENT IN THE CASE OF DIT VS NEW SKIES SATELLITE BV, (ITA 473/2012 VIDE ORDER DATED 08.02.2016), TH E HONBLE DELHI HIGH COURT HAS OBSERVED THAT NO AMENDMENT TO THE ACT, WH ETHER RETROSPECTIVE OR PROSPECTIVE CAN BE READ IN A MANNER SO AS TO EXTEND IN OPERATION TO THE TERMS OF AN INTERNATIONAL TREATY. IN OTHER WORDS, A CLARIFIC ATORY OR DECLARATORY AMENDMENT, MUCH LESS ONE WHICH MAY SEEK TO OVERCOME AN UNWELCOME JUDICIAL INTERPRETATION OF LAW, CANNOT BE ALLOWED T O HAVE THE SAME RETROACTIVE EFFECT ON AN INTERNATIONAL INSTRUMENT AFFECTED BETW EEN TWO SOVEREIGN STATES PRIOR TO SUCH AMENDMENT. THAT AN AMENDMENT TO A TRE ATY MUST BE BROUGHT ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 20 ABOUT BY AGREEMENT BETWEEN THE PARTIES. UNILATERAL AMENDMENTS TO TREATIES ARE THEREFORE CATEGORICALLY PROHIBITED. EVEN THE PARLIA MENT IS NOT COMPETENT TO EFFECT AMENDMENTS TO INTERNATIONAL INSTRUMENTS. AS HELD BY THE HONBLE SUPREME COURT IN AZADI BACHAO ANDOLAN (2003) 263 ITR 607, THESE TREATIES ARE CREATIONS OF A DIFFERENT PROCESS SUBJECT TO NEG OTIATIONS BY SOVEREIGN NATIONS. WHILE RELYING ON THE DECISION OF THE HON BLE MADRAS HIGH COURT, IN CIT VS VR. S.RM. FIRMS & ORS, THE HONBLE DELHI HIGH COURT HELD THAT THE TAX TREATIES ARE CONSIDERED TO BE MINI LEGISLAT ION CONTAINING IN THEMSELVES ALL THE RELEVANT ASPECTS OR FEATURES WHICH ARE AT V ARIANCE WITH THE GENERAL TAXATION LAWS OF THE RESPECTIVE COUNTRIES. THE PARL IAMENT IS NOT EQUIPPED WITH THE POWER TO, THROUGH DOMESTIC LAW, CHANGE THE TERM S OF A TREATY. AMENDMENTS TO DOMESTIC LAW CANNOT BE READ INTO TREATY PROVISIO NS WITHOUT AMENDING THE TREATY ITSELF. IT IS FALLACIOUS TO ASSUME THAT ANY CHANGE MADE TO DOMESTIC LAW TO RECTIFY A SITUATION OF MISTAKEN INTERPRETATION CAN SPONTANEOUSLY FURTHER THEIR CASE IN AN INTERNATIONAL TREATY. THEREFORE, MERE AM ENDMENT TO SECTION 9(1)(VI) CANNOT RESULT IN A CHANGE. IT IS IMPERATIVE THAT SU CH AMENDMENT IS BROUGHT ABOUT IN THE AGREEMENT AS WELL. HONBLE DELHI HIGH COURT CONCLUDED IN THE SAID DECISION (SUPRA) THAT THE FINANCE ACT, 2012 WI LL NOT AFFECT ARTICLE 12 OF THE DTAAS, IT WOULD FOLLOW THAT THE FIRST DETERMINATIVE INTERPRETATION GIVEN TO THE WORD ROYALTY PRIOR TO THE AMENDMENT IN THE INCOME TAX ACT WILL CONTINUE TO HOLD THE FIELD FOR THE PURPOSE OF ASSESSMENT YEARS PRECEDING THE FINANCE ACT, 2012 AND IN ALL CASES WHICH INVOLVE A DOUBLE TAX AV OIDANCE AGREEMENT, UNLESS THE SAID DTAAS ARE AMENDED JOINTLY BY BOTH P ARTIES. 22. FURTHER, WE FIND THAT IN ALL THE DECISIONS OF THE HONBLE HIGH COURTS RELIED UPON BY BOTH THE LD. REPRESENTATIVES OF THE PARTIES I.E. NOT ONLY IN THE DECISIONS RELIED UPON BY THE ASSESSEE OF THE HONBL E DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD. (SUPRA) AND ERICSON A.B. (SUPRA) BUT ALSO IN THE DECISIONS RELIED UPON BY THE REVENUE I.E. SAMSUNG ELECTRONICS COMPANY LTD. & OTHERS (SUPRA), SYNOPSIS INTERNATIONAL OLD LTD. (SUPRA) AND OF THE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 21 TRIBUNAL IN THE CASE OF RELIANCE INFOCOM LTD. (SU PRA), THE DIFFERENT BENCHES OF THE HIGH COURTS AND THE TRIBUNAL HAVE BEEN UNANI MOUS TO HOLD THAT AS PER THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN T HE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 607, THAT WHERE A SPECIFIC PROVISION IS MADE IN THE DTAA, THAT PROVISION WILL PREVAIL OVER THE GENERAL PROVISIONS CONTAINED IN THE INCOME TAX ACT IF, THE SAME IS MORE BENEFICIAL TO THE ASSESSEE AS PROVIDED UNDER SECTION 90 OF THE IN COME TAX ACT. ALL THE HONBLE HIGH COURTS (SUPRA) HAVE ALSO BEEN UNANIMOU S TO FURTHER HOLD THAT THE DEFINITION OF ROYALTY IS RESTRICTIVE IN DTAA WHER EAS THE DEFINITION OF ROYALTY UNDER THE INCOME TAX ACT IS BROADER IN ITS CONTENT. THEREFORE, THE DEFINITION OF ROYALTY IN DTAA IS MORE BENEFICIAL TO THE ASSESSEE AND HENCE THE CASE OF THE ASSESSEE IS TO BE EXAMINED IN THE LIGHT OF THE DEFI NITION OF ROYALTY AS PROVIDED IN THE DTAA AND THAT THE PROVISIONS OF THE DTAA WIL L, IN SUCH AN EVENT, OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. SIN CE, THE LD. AR OF THE ASSESSEE HAS STATED THAT THE DEFINITION OF TREATY I N THE DTAA WITH SINGAPORE IS MORE BENEFICIAL TO THE ASSESSEE AND THAT THE CASE O F THE ASSESSEE BE DECIDED TAKING THE DEFINITION AS PROVIDED IN THE TREATY, HE NCE, IN THE LIGHT OF ABOVE CITED DECISIONS, WE PROCEED TO EXAMINE AS TO THE CONSIDER ATION PAID BY THE ASSESSEE FOR THE PURCHASE OF OFF THE SHELF SOFTWARE CAN BE C OVERED WITHIN THE SCOPE OF THE ROYALTY AS PROVIDED UNDER THE DTAA. 23. FROM THE PERUSAL OF THE ABOVE REPRODUCED DEFINI TION OF ROYALTY AS PROVIDED IN ARTICLE 12 IN SINGAPORE TREATY, IT IS REVEALED THAT IT IS THE PAYMENT WHICH IS RECEIVED AS CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC, SCIENTIFIC WORK IN CLUDING .. (EMPHASIS SUPPLIED BY US). HENCE, WHAT IS RELEVANT IS THE CON SIDERATION PAID FOR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT. THE RIG HT TO USE A COMPUTER SOFTWARE/PROGRAMME HAS NOT BEEN SPECIFICALLY MENTIO NED IN THE TREATY WITH SINGAPORE OR EVEN IN THE IDENTICALLY WORDED TREATY WITH US AND OR WITH ANY OTHER COUNTRY. HOWEVER, THE LD. DR, AT THIS STAGE, HAS STRESSED ON THE DEFINITION OF WORD ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 22 LITERARY WORK. IT HAS BEEN SUBMITTED THAT THE DE FINITION OF LITERARY WORK AS PROVIDED UNDER THE DOMESTIC LAW VIZ. COPYRIGHT ACT, 1957 SHOULD BE CONSIDERED WHILE DECIDING THE SCOPE OF THE TERM RO YALTY AS DEFINED UNDER THE TREATY. THIS ISSUE HAS BEEN DISCUSSED BY THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. & OTH ERS (SUPRA) WHILE RELYING UPON ARTICLE 3 SUB SECTION (2) OF THE DTAA WITH US, OBSERVING THAT ANY TERM NOT DEFINED IN THE CONVENTION SHALL, UNLES S THE CONTEXT OTHERWISE REQUIRES, HAVE THE MEANING WHICH IT HAS UNDER THE L AWS OF THAT STATE CONCERNING THE TAX TO WHICH THE CONVENTION APPLIES. HENCE, THE REFERENCE IS TO BE MADE TO THE RESPECTIVE LAW OF THE TAXING STATE ( INDIA IN THIS CASE) REGARDING THE DEFINITION OF LITERARY WORK AND COPYRIGHT. THE RELEVANT PART OF THE ARTICLE 3 OF THE DTAA WITH SINGAPORE FOR THE PURPOS E OF READY REFERENCE IS REPRODUCED AS UNDER: ART 3 . (2.) AS REGARDS THE APPLICATION OF THE AGREEMENT BY A CONTRACTING STATE, ANY TERM NOT DEFINED THEREIN SHALL, UNLESS THE CONTEXT OTHERWISE REQUIRES, HAVE, THE MEANING WHICH IT HAS UNDER THE LAW OF THAT STATE CO NCERNING THE TAXES TO WHICH THE AGREEMENT APPLIES. 24. HENCE, THE QUESTION BEFORE US, AT THIS STAGE, I S WHETHER THE TERM LITERARY WORK AS MENTIONED IN THE DEFINITION OF ROYALTY IN THE TREATY WOULD INCLUDE SOFTWARE OR NOT? WE NOTE THAT THE TERM 'LITERARY WORK' COVERS WORK, WHICH IS EXPRESSED IN PRINT OR WRITING IRRESPECTIVE OF THE QUESTION OF IT S LITERARY MERIT OR QUALITY. IT MUST BE EXPRESSED IN SOME MATERIAL FORM, I.E. WRITI NG OR PRINT OR IN SOME FORM OF NOTATION OR SYMBOLS, WHICH MEANS IN A FORM CAPABLE OF EITHER VISUALLY OR AUDIBLY RECREATING THE REPRESENTATION OF THE ORI GINAL WORK. AS PER THE PROVISIONS OF SECTION 2(O) OF THE INDIAN COPYRIGHT ACT, 1957 THE TERM LITERARY WORK INCLUDES COMPUTER PROGRAMS, TABLES AND COMPIL ATIONS INCLUDING COMPUTER DATA BASE. THEREFORE, THE COMPUTER SOFTWA RE HAS BEEN RECOGNIZED AS A COPYRIGHT WORK IN INDIA, IF THEY ARE ORIGINAL INTELLECTUAL CREATIONS. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 23 25. COMPUTER PROGRAMME AS DEFINED IN THE COPYRIG HT ACT, MEANS A SET OF INSTRUCTIONS EXPRESSED IN WORDS, CODES, SCHEMES OR IN ANY OTHER FORM, INCLUDING A MACHINE-READABLE MEDIUM CAPABLE OF CAUS ING A COMPUTER TO PERFORM A PARTICULAR TASK OR TO ACHIEVE A PARTICULA R RESULT. THE WORDS 'SCHEMES OR IN ANY OTHER FORM' WOULD SEEM TO INDICATE THAT T HE SOURCE CODE AND OBJECT CODE OF A COMPUTER PROGRAMME ARE ENTITLED TO COPYRI GHT PROTECTION. IT MAY BE NOTED HERE THAT COPYRIGHT PROTECTS THE EXPRESSION O F AN IDEA AND NOT THE IDEA ITSELF. THE IDEAS EMBEDDED IN THE SOFTWARE ARE THER EFORE NOT PROTECTED BUT THE WAYS BY WHICH THE IDEAS ARE EXPRESSED IN THE SOURCE CODE ARE PROTECTED. 26. IN THE PAST, SOFTWARE WERE OFTEN SOLD AS AN I NTEGRAL PART OF THE COMPUTER SYSTEM, BUT NOW A DAYS, SOFTWARE PRODUCTS ARE SOLD OR LICENSED IN THE FORM OF COMPUTER READABLE MEDIA SUCH AS DISKETTES AND CD-RO MS OR DIRECTLY OVER THE INTERNET. THOUGH SUCH FLOPPY DISC; THE CD-ROM OR TH E HARD DISC ARE TANGIBLE COMMODITIES, BUT, THE SOFTWARE EMBEDDED IN THESE ME DIA DEVICES IS INTANGIBLE. IN THE EARLIER DAYS CUSTOMIZED SOFTWARE WAS MADE A ND THE CONTRACTS INVOLVED TWO DISTINCT PARTIES WHO COULD DISCUSS ALL THE TERM S OF SUCH AGREEMENT BETWEEN THEM. HOWEVER, NOW A DAYS THE SOFTWARE BECOME MASS MARKET ITEMS AND ARE AVAILABLE OFF THE SHELF. AT THE TIME OF SALE OF SU CH OFF THE SHELF SOFTWARE EMBEDDED DISKETTES OR CD-ROMS, THE RIGHTS ASSIGNED BY THE AUTHOR/OWNER OF THE SOFTWARE WOULD BE VERY SPECIFIC IN THEIR SCOPE, INDICATING CLEARLY TO THE PURCHASER THE ACTIONS THAT HE/SHE IS PERMITTED TO P ERFORM IN RELATION TO THE SOFTWARE EMBEDDED IN THOSE DISCS. 27. NOW, THE QUESTION BEFORE US IS AS TO WHETHER TH E SALE OF SHRINK WRAPPED /OFF THE SHELF COMPUTER SOFTWARE BY THE NON-RESIDEN T TO THE RESIDENT ASSESSEE AMOUNTS TO THE TRANSFER FOR THE USE OF OR THE RIG HT TO USE ANY COPYRIGHT IN A LITERARY WORK. BEFORE DELIBERATING FURTHER IN THIS RESPECT, WE THINK IT PROPER TO FIRST DISCUSS THE NATURE OF THE SHRINK WRAPPED SOFT WARE. THE WORDS SHRINK WRAP REFER TO THE SHRINK WRAP PA CKAGING THAT GENERALLY CONTAIN THE CD ROM OF SOFTWARE. THE TERMS AND COND ITIONS OF ACCESSING THE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 24 PARTICULAR SOFTWARE ARE PRINTED ON THE SHRINK WRAP COVER OF THE CD AND THE PURCHASER AFTER GOING THROUGH THE SAME TEARS THE CO VER TO ACCESS THE CD ROM. THE TYPICAL SHRINK WRAP AGREEMENT IS A SINGLE PIE CE OF PAPER DESCRIBING THE LICENCE TERMS, CONTAINED INSIDE THE BOX AND WRAPPED IN TRANSPARENT PAPER ALONG WITH THE COMPUTER SOFTWARE INSTALLATION AND DISKETT ES OR THE OWNERS MANUAL. THESE AGREEMENTS CONTAIN TYPICAL CLAUSES ON ANTI-RE USE, ANTI-REVERSE ENGINEERING AND LIMITED COPYRIGHT PROVISION. SOMET IMES, THESE MAY HAVE CLAUSES DISCLAIMING OF WARRANTIES AND LIABILITIES. END USER IS BOUND AND IS CONSIDERED TO HAVE AGREED WITH THE LICENSE, IF HE T EARS OPEN THE PACKAGE. SHRINK WRAP AGREEMENTS DO NOT FOLLOW THE NORMAL PRA CTICE OF AN AGREEMENT BETWEEN THE PARTIES, WHERE THE TERMS OF AN AGREEMEN T ARE NEGOTIATED BETWEEN THE PARTIES. THE OTHER POPULAR WAY OF TRANSFER/SALE OR LICENSING THE SOFTWARE IS THROUGH CLICK WRAP AGREEMENTS. IN THESE LICENSES, SOFTWAR E DEVELOPERS DO NOT RECEIVE A SIGNED AGREEMENT FROM THE USER INSTEAD OF HE RELI ES ON THE CUSTOMERS MANIFESTATION OF ASCENT VIA THE INTERNET. THE USER GENERALLY IS ASKED TO REVIEW THE TERMS OF THE AGREEMENT AND INDICATE THE ASCENT BY CLICKING ON THE BUTTON/ICON AT THE END OF THE LICENSE. THE BUTTON OR THE ICON PROVIDED IN THESE AGREEMENTS IS GENERALLY I AGREE AND I DECLINE. THE I AGREE OR OK BUTTON/ICON CONSTITUTES AGREEMENT TO THE CLICK WRA PPED LICENSE AGREEMENT. SOME TIMES WHEN SHRINK WRAPPED SOFTWARE IS DOWNLO ADED ON THE COMPUTER, IT MAY AGAIN ASK TO AGREE TO CERTAIN TERMS AS IN CASE OF CLICK WRAP SOFTWARE. THE PURCHASER OR THE END USER ONCE HAS CLICKED THE OK BUTTON HE HAS NO RIGHT TO DECLINE THE TERMS OF AGREEMENT BY RETURNING THE SOF TWARE. THERE IS NO BARGAINING INVOLVED IN THESE LICENSES WHOSE TERMS A RE SET BY THE LICENSOR. 28. SOFTWARE CONTRACTS, LIKE MANY OTHER TRANSACTION S, ARE GOVERNED BY THE COMMON LAW PRINCIPLES AS EMBODIED IN THE INDIAN CON TRACT ACT. CONTRACTS CAN BE IN THE NATURE OF SALE OR ASSIGNMENT/LICENSE. IF THE COMPUTER SOFTWARE IS ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 25 CONSIDERED AS A 'GOOD', THE SALE OF GOODS ACT, 1930 WILL HAVE RELEVANCE IN THE FORMATION AND EXECUTION OF THE SALE CONTRACT. IN CONTEXT OF COPYRIGHT LAW, A LICENSE IS A PERMISS ION TO DO AN ACT THAT, WHEN THE DOING OF THE SAME WITHOUT PERMISSION, WOULD BE UNLAWFUL. IN SOFTWARE LICENCES, THE COPYRIGHT OWNER RETAINS SUBSTANTIAL R IGHTS AND GREATER ABILITY TO CONTROL THE USE OF SOFTWARE. LICENCE MAY HAVE PROVI SIONS RELATING TO THE PERSONS WHO MAY USE THE PROGRAMME, THE NUMBER OF CO PIES THAT CAN BE MADE, WARRANTY, LIMITATION OF LIABILITY, DISTRIBUTION OF THE SOFTWARE, ETC. THESE ARE GENERALLY BIASED TOWARDS THE LICENSOR. 29. THE PLEA RAISED ON BEHALF OF THE REVENUE IS T HAT SALE OF OFF-THE-SHELF SOFTWARE MAY BE EASILY TERMED AS SALE BUT IN SUCH A 'BUYING', THE TITLE TO THE BOX, CONTAINING DISK, MANUAL ETC., MAY PASS TO THE BUYER, BUT THE TITLE TO IP IN THE SOFTWARE DOES NOT. HONBLE KARNATAKA H IGH COURT IN CIT VS. SAMSUNG ELECTRONICS COMPANY LTD. & OTHERS (2012) 3 45 ITR 494 HAS OBSERVED THAT UNDER THE AGREEMENT, WHAT WAS TRANSFE RRED WAS ONLY A LICENSE TO USE THE COPYRIGHT BELONGING TO THE NON-RESIDENT SUB JECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT AND THAT THE NON-RESIDE NT SUPPLIER CONTINUED TO BE THE OWNER OF THE COPYRIGHT AND ALL OTHER INTELLECTU AL PROPERTY RIGHTS; THAT THE COPYRIGHT IS A NEGATIVE RIGHT. IT IS A BUNDLE OF M ANY RIGHTS AND LICENSE IS GRANTED FOR MAKING USE OF THE COPYRIGHT IN RESPECT OF SHRINK WRAPPED SOFTWARE / OFF THE SHELF SOFTWARE UNDER THE RESPECTIVE AGREEME NT WHICH AUTHORIZES THE END USER I.E. THE CUSTOMER TO MAKE USE OF THE COPYRIGHT SOFTWARE CONTAINED IN THE SAID SOFTWARE, WHICH IS PURCHASED OFF THE SHELF OR IMPORTED AS SHRINK WRAPPED SOFTWARE AND THAT THE SAME WOULD AMOUNT TO TRANSFER OF PART OF THE COPYRIGHT AND TRANSFER OF RIGHT TO USE THE COPYRIGHT FOR INTE RNAL BUSINESS OF THE ASSESSEE AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. IT WAS THEREFORE HELD THAT THE CONTENTION OF THE ASSESSEE THAT THERE WAS NO TRANSF ER OF COPYRIGHT OR ANY PART THEREOF UNDER THE AGREEMENTS ENTERED INTO BY THE RE SPONDENT WITH THE NON- RESIDENT SUPPLIER OF SOFTWARE CANNOT BE ACCEPTED. THE TRIBUNAL IN THE SAID CASE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 26 HAS ALSO RELIED UPON ANOTHER DECISION OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SYNOPSIS INTERNATIONAL OLD LTD . (2013) 212 TAXMAN 454 WHEREIN THE HONBLE KARNATAKA HIGH COURT HAS OBSERV ED THAT EVEN IN CASE OF END-USER SOFTWARE LICENSE AGREEMENT GRANTED FOR A N ON EXCLUSIVE, NON TRANSFERABLE, WITHOUT RIGHT OF SUB LICENSE OF USE O F THE LICENSED SOFTWARE AND DESIGN TECHNIQUES, THAT DOES NOT TAKE AWAY THE SOF TWARE OUT OF THE DEFINITION OF THE COPYRIGHT. EVEN IF IT IS NOT A TRANSFER OF EXC LUSIVE RIGHT IN THE COPYRIGHT, THE RIGHT TO USE THE CONFIDENTIAL INFORMATION EMBEDDED IN THE SOFTWARE IN TERMS OF THE LICENSE MAKES IT ABUNDANTLY CLEAR THAT THERE IS TRANSFER OF CERTAIN RIGHTS WHICH THE OWNER OF A COPYRIGHT POSSESSES IN THE SAI D COMPUTER SOFTWARE/PROGRAMME IN RESPECT OF THE COPYRIGHT. TH E HONBLE KARNATAKA HIGH COURT WHILE ANALYZING THE PROVISIONS OF THE DTAA HE LD THAT THE CONSIDERATION PAID FOR THE USE OR RIGHT TO USE THE SAID CONFI DENTIAL INFORMATION IN THE FORM OF COMPUTER PROGRAMME SOFTWARE ITSELF CONSTITUTES R OYALTY AND ATTRACTS TAX. IT HAS BEEN FURTHER HELD THAT IT IS NOT NECESSARY THAT THERE SHOULD BE A TRANSFER OF EXCLUSIVE RIGHT IN THE COPYRIGHT. THAT THE CONSIDE RATION PAID IS FOR RIGHTS IN RESPECT OF COPYRIGHT AND FOR THE USER OF THE CONFID ENTIAL INFORMATION EMBEDDED IN THE SOFTWARE/COMPUTER PROGRAM, THEREFORE, IT FAL LS WITHIN THE MISCHIEF OF EXPLANATION 2 OF CLAUSE (VI) OF SUB SECTION (1) OF SECTION 9 OF THE INCOME TAX ACT AND THERE IS A LIABILITY TO PAY THE TAX IN INDI A. 30. HOWEVER, DIFFERENT BENCHES OF THE HONBLE DELHI HIGH COURT IN THE ABOVE CITED DECISIONS IN THE CASE OF DIT VS. INFRA SOFT LTD. (SUPRA); DIT VS NOKIA NETWORKS OY (SUPRA) AND IN THE CASE OF DIT VS. ERICSON A.B. (SUPRA) HAVE BEEN UNANIMOUS TO HOLD THAT THE LICENSE GRANTE D TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN COMPUTER FOR ITS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINES S PURPOSES. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAM FUNCTIONAL AND TO HAVE ACCESS TO IT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 27 JUST AS THE OWNER WOULD BE IN A POSITION TO DO. TH E HONBLE DELHI HIGH COURT HAS OBSERVED THAT IN SUCH A CASE THERE IS NO TRANSF ER OF ANY RIGHT IN RESPECT OF COPYRIGHT TO THE ASSESSEE AND IT IS A CASE OF TRANS FER OF A COPYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRES ENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDERED AS ROYALTY. TH E HONBLE DELHI HIGH COURT HAS FURTHER HELD THAT WHAT IS TRANSFERRED IS NEITHE R CAN BE RIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT I S THE RIGHT TO USE COPYRIGHTED MATERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT AND THE SAME DOES NOT GIVE RISE TO ANY ROYALTY INCOME A ND WOULD BE THE BUSINESS INCOME. THE HONBLE DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD. (SUPRA) HAS ALSO RELIED UPON ANOTHER DECISION OF THE HONBL E DELHI HIGH COURT IN THE CASE OF DIT VS. NOKIA NETWORKS OY (2013) 212 TAXM AN 68 WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT THE COPYRIGH T IS DISTINCT FROM MATERIAL OBJECT. IT IS INTANGIBLE, INCORPOREAL RIGHT IN THE NATURE OF PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE SUCH AS MANUS CRIPT. THE TRANSFER OF THE OWNERSHIP OF A PHYSICAL THING IN WHICH COPYRIGHT EX ISTS COMES TO THE PURCHASER WITH THE RIGHT TO DO WITH IT WHATEVER HE PLEASES, E XCEPT THE RIGHT TO MAKE COPIES AND ISSUE THEM TO THE PUBLIC. JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HAS ALSO COPYRIGHT IN IT. 31. NOW, AFTER GOING THROUGH THE DIVERGENT VIEWS OF THE DIFFERENT BENCHES OF THE HIGH COURTS ON THIS ISSUE, THE QUEST ION THAT ARISES BEFORE US AS TO WHETHER THE SALE OF SHRINK WRAPPED SOFTWARE C AN BE SAID TO BE SALE OF GOOD OR GRANT OF LICENSE TO USE. SECTION 2 (7) OF THE SALE OF GOODS ACT, 1930 DEFINE S 'GOOD' AS 'EVERY KIND OF MOVABLE PROPERTY OTHER THAN ACTIONABLE CLAIMS AN D MONEY, AND INCLUDES STOCK AND SHARES, GROWING CROPS, GRASS....' THIS DE FINITION OF 'GOODS' THUS INCLUDES ALL TYPES OF MOVABLE PROPERTIES, WHETHER T ANGIBLE OR INTANGIBLE. THE HONBLE SUPREME COURT IN THE CASE OF TATA CONS ULTANCY SERVICES VS STATE OF ANDHRA PRADESH 271 ITR 401 (2004), HAS CO NSIDERED COMPUTER ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 28 SOFTWARE AS 'GOODS' AND STATED THAT NOTWITHSTANDING THE FACT THAT COMPUTER SOFTWARE IS INTELLECTUAL PROPERTY, WHETHER IT IS CO NVEYED IN DISKETTES, FLOPPY, MAGNETIC TAPES OR CD ROMS, WHETHER CANNED ( SHRINK-WRAPPED) OR UNCANNED (CUSTOMIZED), WHETHER IT COMES AS PART OF THE COMPUTER OR INDEPENDENTLY, WHETHER IT IS BRANDED OR UNBRANDED, TANGIBLE OR INTANGIBLE. THE HONBLE SUPREME COURT HELD THAT, 'IT WOULD BECO ME GOODS PROVIDED IT HAS THE ATTRIBUTES THEREOF HAVING REGARD TO (A) ITS UTILITY; (B) CAPABLE OF BEING BOUGHT AND SOLD; AND (C) CAPABLE OF BEING TRA NSMITTED, TRANSFERRED, DELIVERED, STORED AND POSSESSED. IF A SOFTWARE WHET HER CUSTOMIZED OR NON- CUSTOMIZED SATISFIES THESE ATTRIBUTES, THE SAME WOU LD BE GOODS.' THE HONBLE APEX COURT WHILE CITING THE DECISION OF THE US COURT IN ADVENT SYSTEMS LTD V UNISYS CORPORATION (925) F 2D 670 (3 RD CIR 1991), HELD THAT A COMPUTER PROGRAM MAY BE COPYRIGHTABLE AS INT ELLECTUAL PROPERTY, DOES NOT ALTER THE FACT THAT ONCE IN THE FORM OF A FLOPPY DISC OR OTHER MEDIUM, THE PROGRAM IS TANGIBLE, MOVABLE AND AVAILA BLE IN THE MARKET PLACE. IN SUCH A CASE, THE INTELLECTUAL PROPERTY HA S BEEN INCORPORATED ON A MEDIA FOR PURPOSES OF TRANSFER. THE SOFTWARE AND TH E MEDIA CANNOT BE SPLIT UP. IN ASSOCIATED CEMENTS CO. LTD. VS. COMMISSIONER OF CUSTOMS, AIR 2001 SC 862, THE HONBLE SUPREME COURT EXAMINED WHETHER THE DRAWINGS AND LICENSE COULD BE CONSIDERED AS GOODS. THE HONBL E SUPREME COURT HELD THAT ALL TANGIBLE, MOVABLE ARTICLES ARE GOODS FOR CHARGE OF CUSTOM DUTIES UNDER SECTION 12 READ WITH SECTION 2(22)(E) OF THE CUSTOM S ACT, 1962, IRRESPECTIVE OF WHAT THE ARTICLE MAY BE OR MAY CONTAIN. IT MAY BE THAT WHAT THE IMPORTER WANTED AND PAID FOR WAS TECHNICAL ADVICE OR INFORMA TION TECHNOLOGY, AN INTANGIBLE ASSET, BUT THE MOMENT THE INFORMATION OR ADVICE IS PUT ON MEDIA, WHETHER PAPER OR CASSETTE OR DISKETTE OR ANY OTHER THING, THAT WHAT IS SUPPLIED, IT BECOMES CHATTEL. THE HONBLE SUPREME COURT, THUS, H ELD THAT THE INTELLECTUAL PROPERTY SUCH AS DRAWINGS, LICENSE AND TECHNICAL MA TERIAL WHEN PUT ON A MEDIA IS TO BE REGARDED AS AN ARTICLE AND THERE IS NO SCO PE FOR SPLITTING THE ENGINEERING ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 29 DRAWINGS OR ENCYCLOPEDIA INTO INTELLECTUAL INPUT ON THE ONE HAND AND THE PAPER ON WHICH IT IS SCRIBED ON THE OTHER HAND. 32. NO DOUBT, THE DOMINANT OBJECT OF SALE IN SUCH T RANSACTION IS THE COMPUTER SOFTWARE AND NOT THE DISK OR THE CD UPON WHICH SUCH SOFTWARE IS LOADED. AS UNDERSTOOD BY US, WHAT THE COMPUTER PROGRAMME OR THE SOFTWARE IS AN EXPRESSION OF WORK/IDEAS WRITTEN ON A MEDIA IN A C OMPUTER PROGRAMMING LANGUAGE AND THAT IS WHY IT HAS BEEN INCLUDED WORLD WIDE IN THE CATEGORY OF LITERARY WORK. AS PER THE DEFINITION PROVIDED IN SE CTION 2 (FFC) OF THE INDIAN COPYRIGHT ACT 1957 'COMPUTER PROGRAMME' MEANS A SET OF INSTRUCTIONS EXPRESSED IN WORDS, CODES, SCHEMES OR IN ANY OTHER FORM, INCLUDING A MACHINE READABLE MEDIUM, CAPABLE OF CAUSING A COMPUTER TO P ERFORM A PARTICULAR TASK OR ACHIEVE A PARTICULAR RESULT; AS PER EXPLANATION 3 T O SECTION 9(1)(VI), THE COMPUTER SOFTWARE HAS BEEN DEFINED AS FOLLOWS: COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE AND INCLUDES ANY SUCH PROGRAMME OR ANY CUSTOMIZED ELECTRONIC DATA. HENCE, LIKE ANY OTHER LITERARY WORK, COMPUTER PROGR AMME CAN NOT BE READ OR UTILIZED WITHOUT DOWNLOADING ON A MEDIA LIKE HARD D ISK, CD, FLOPPY OR ANY OTHER SUCH DEVICE. AS AN AUTHOR OF A LITERARY WORK MAY BE HAVING SOME IDEAS IN HIS MIND IN AN INTANGIBLE FORM BUT THE COPYRIGHT IN THOSE IDEAS IS CREATED WHEN THEY ARE EXPRESSED IN A PARTICULAR MANNER IN THE SH APE OF SOME IMPRESSIONS, SYMBOLS OR LANGUAGE OR VISUALS ETC. ON A MEDIA SUCH AS BOOK, FILM OR CD OR SCREEN ETC. NOW A DAYS NOT ONLY THE COMPUTER PROGRA MMES BUT ALSO THE OTHER LITERARY WORK CAN BE TRANSMITTED OVER THE INTERNET FROM ONE MEDIA/COMPUTER TO THE OTHER MEDIA /COMPUTER. BUT THESE EXPRESSIONS OF IDEAS CALLED LITERARY WORK INCLUDING COMPUTER PROGRAMMES CAN NOT BE READ OR UT ILIZED WITHOUT DOWNLOADING OR WRITING THEM ON A MEDIA. HENCE, THOU GH THE SAME AS A RESULT OF ADVANCEMENT IN TECHNOLOGY CAN BE TRANSMITTED IN AN INTANGIBLE FORM, BUT TO CONSTITUTE A LITERARY WORK, THESE HAVE TO BE TRANSF ORMED INTO A TANGIBLE FORM. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 30 COMPUTER PROGRAMMES IN ITSELF CAN NOT BE EQUATED AN D CATEGORIZED INTO AN INTANGIBLE MATERIAL OR RIGHT A SUCH AS A BUSINESS O R COMMERCIAL RIGHT LIKE COPY RIGHT, RIGHT TO PRACTICE SOME PROFESSION OR NONCOMP ETING RIGHT ETC.; HENCE ONCE INCORPORATED ON A MEDIA, IT BECOME A GOODS AND IT SELF IS NOT A COPY RIGHT; HOWEVER A COPY RIGHT CAN BE CREATED IN RESPECT OF SUCH IDEAS EXPRESSED ON A MEDIA. FURTHER THE COPYRIGHT DOESNT PROTECT THE ID EA ITSELF BUT ONLY PROTECTS THE WAY OR THE MANNER IN WHICH SUCH IDEAS ARE EXPRESSED . 33. FURTHER, IT IS ALSO NOT DISPUTED THAT IN CASE O F SHRINK WRAPPED SOFTWARE, THE PRODUCT IS AVAILABLE OFF THE SHELF IN THE MARKE T. THE OWNER OR THE LICENSOR DOES NOT INVITE ANY EXPRESSION OF INTEREST FROM THE INTENDING USERS OF THE PRODUCT. HE DOES NOT GRANT LICENSE BY SEEING THE N AMES AND DETAILS OF THE PERSONS SEEKING THE LICENSE TO USE SOFTWARE RATHER THE SITUATION IS A DIAGONALLY OPPOSITE. THE LICENSE IS NOT GRANTED TO ANY SPECIF IC PERSON; ANYBODY CAN PURCHASE THE PRODUCT FROM THE MARKET WHICH IS AVAIL ABLE IN THE SHAPE OF CD ROM/DISKETTE FALLING IN THE DEFINITION OF GOODS A S DEFINED UNDER THE SALE OF GOODS ACT, 1930. WHOSOEVER PAY THE PRICE OF THE GO OD, HE IS SUPPOSED TO HAVE RIGHT TO USE THAT GOOD. ON THE COMPLETION OF THE SALE, THE PROPERTY IN SUCH A GOOD PASSES TO THE BUYER AND THE BUYER HAS EVERY RIGHT OF FAIR USE OF THE SAID PRODUCT AND SUBJECT TO THE CONDITIONS MENTIONED IN THE SHRINK WRAP/COVER OF THE PRODUCT WHICH ARE IN THE SHAPE OF RESTRICTIONS OR L IMITATIONS TO THE EFFECT THAT THE BUYER WILL NOT MISUSE THE PRODUCT WHICH MAY AMO UNT TO INFRINGE OF COPYRIGHT IN THE PRODUCT. SO WHAT THE BUYER PURCHA SES IS THE COPYRIGHTED PRODUCT AND HE IS ENTITLED TO FAIR USE OF THE PRODU CT. THE RESTRICTION OR THE TERMS MENTIONED IN THE PAPER/COVER ARE THE CONDITIO NS OF SALE RESTRICTING MISUSE AND CAN NOT BE SAID TO BE LICENSE TO USE. HOWEVER, THE PURCHASER IS ENTITLED TO PERFORM ALL OR ANY OF THE ACTIVITIES WHICH IS ESSEN TIALLY REQUIRED FOR THE FAIR USE FOR THE PURPOSE FOR WHICH THE PRODUCT IS PURCHASED BY HIM. SECTION 52 OF THE COPYRIGHT ACT EXPRESSLY RECOGNIZES SUCH A RIGHT OF THE PURCHASE WHICH WE WILL DISCUSS IN LATER PART OF THIS ORDER. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 31 FURTHER, THE COMPUTER SOFTWARE AS GENERALLY OBSERVE D HAS A SHORTER LIFE CYCLE. WHEN A SHRINK WRAPPED SOFTWARE IS SOLD, THE OWNER G ETS THE PRICE OF THE COPY OF THE PRODUCT/WORK. EVEN IF THE OWNER/LICENSOR HAS FIXED THE DURATION OR THE TIME LIMIT FOR THE USE OF THE PRODUCT, ON THE EXPIR Y OF WHICH THE SAME BECOMES UNUSABLE, HE IN-FACT RECEIVES THE PRICE FOR THE EXP ECTED LIFE OF THE WORK AND PRODUCT. IN SUCH CASE THE PURCHASER PAYS THE PRICE FOR THE PRODUCT ITSELF AND NOT THE LICENSE TO USE. 34. THE NEXT CONTENTION OF THE REVENUE IS THAT IN CASE OF SOFTWARE LICENSES, THE COPYRIGHT OWNER GIVES A LICENSE TO US E THE COPYRIGHT IN THE SOFTWARE AND THAT THE OWNER OF SOFTWARE EXERCISES P OWER OVER NOT ONLY THE SOFTWARE ITSELF BUT ALSO OVER PEOPLE WHO MAY WISH T O USE THE SOFTWARE AND THAT THE OWNER OF THE SOFTWARE DECIDES WHO WILL USE HIS WORK. IT HAS THEREFORE BEEN STRONGLY CONTENDED ON BEHALF OF THE REVENUE THAT IT IS THE RIGHT GIVEN TO USE THE COPYRIGHT IN THE SOFTWARE. 35. THIS CONTENTION, THOUGH, ON THE FACE OF IT MAY SEEM TO BE QUITE PLAUSIBLE OR REASONABLE, HOWEVER, WHEN WE EXAMINE T HE NATURE OF THE TRANSACTIONS IN CASE OF SHRINK WRAPPED SOFTWARE, WE ARE OF THE VIEW THAT THE ABOVE CONTENTION IS NOT SO TRUE. IN OUR VIEW, IN CA SE OF SHRINK WRAPPED SOFTWARE, WHAT IS SOLD IS THE CD ROM OR DISKETTE WR APPED IN A TRANSPARENT COVER AND IN A PAPER PUT INSIDE THE COVER, THE COND ITIONS OF USE ALONG WITH RESTRICTIONS AND LIMITATIONS OF USE OF THE SAID ART ICLE/PRODUCT ARE MENTIONED. IN OUR VIEW, THE SALE OF SUCH A CD ROM/DISKETTE IS NOT A LICENSE BUT IT IS A SALE OF A PRODUCT WHICH OF COURSE IS A COPYRIGHTED PRODUCT AND THE OWNER OF THE COPYRIGHT PUTS THE CONDITIONS AND RESTRICTIO NS ON THE USE OF THE PRODUCT SO THAT HIS COPYRIGHTS IN THE COPYRIGHTED A RTICLE OR THE WORK, WHICH HAS BEEN WRITTEN ON SUCH CD ROM/DISKETTE, MAY NOT B E INFRINGED. SUCH CONDITIONS, IN OUR VIEW, ARE NOT THE LICENSE TO USE THE PRODUCT. THE PURCHASER GETS THE RIGHT TO USE THE PRODUCT/DISKETT E ALONG WITH THE PROPERTY IN THE GOOD IN THE SHAPE OF WORK EMBEDDED OR WRIT TEN IN IT WHEN THE SALE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 32 IS COMPLETE I.E. WHEN SUCH DISKETTE/COD ROM IS DELI VERED BY THE SELLER TO THE PURCHASER IN LIEU OF THE CONSIDERATION PAID TO HIM. THUS WHAT IS RESTRICTED BY THE SO CALLED AGREEMENT OR COMMONLY U SED SOFTWARE LICENSE IS THAT THE USER WILL NOT INFRINGE THE COPYRIGHTS IN T HE PRODUCT OF THE COPYRIGHT OWNER OF THE WORK. THE PURCHASER IS ALWAYS ENTITLE D TO FAIR USE OF THE WORK WHICH HE HAS PURCHASED. THUS AT THE MOST, WHAT CAN BE SAID TO BE GRANTED UNDER SUCH A LICENSE IS THE RIGHT TO USE THE COPYRI GHTED WORK AND THE RIGHT TO USE THE COPYRIGHT ITSELF IN THE WORK. WHAT IS PR OHIBITED THROUGH THESE CONDITIONS IS ITS MISUSE WHICH MAY INFRINGE THE RIG HTS OF THE OWNER OF THE SOFTWARE E.G. THE PURCHASER OF THE PRODUCT MAY ATTE MPT AS IT IS EASY IN CASE OF SOFTWARE TO MAKE COPIES ETC. THESE LICENSE AGREE MENTS IN CASE OF SHRINK WRAPPED SOFTWARE ARE THUS THE CONDITIONS OF THE SAL E OF THE PRODUCT AND CANNOT BE TERMED AS A GRANT OF LICENSE TO USE THE P RODUCT. 36. FURTHER, A QUESTION, WHICH NEEDS TO BE EXAMINED WHETHER THE STATUTORY RIGHTS OF THE PURCHASER/USER OF THE SOFTW ARE CAN BE CURTAILED OR DONE AWAY BY THE TERMS OF THE ABOVE EXPLAINED SHRIN K WRAPPED OR CLICK WRAPPED MASS LICENSES/ AGREEMENTS. FIRSTLY THERE AR E SEVERE DOUBTS ABOUT THE ENFORCEABILITY OF SUCH AGREEMENTS. IN THE SO CA LLED INTERNET LICENSE AGREEMENT, THE END USER IS SUPPOSED TO CLICK THE IC ON I AGREE WHICH MEANS THAT THE END USER HAS AGREED TO THE TERMS OF THE LICENSE AGREEMENT. HOWEVER, IT MAY BE NOTED THAT SUCH AGREEMENTS DO NO T ASK THE NAME OR ADDRESS OR OTHER DETAILS OF THE USER. IT IS NOT ME NTIONED IN SUCH TYPE OF AGREEMENTS THAT WHO IS USING THE PRODUCT. IT IS TH E COMPUTER UPON WHICH SUCH SOFTWARE IS LOADED THAT CAN BE SAID TO HAVE AG REED TO ABIDE BY THE TERMS OF THE SOFTWARE LICENSE AS THE USER REMAINS U NIDENTIFIABLE. IN SUCH TYPE OF SOFTWARE LICENSES, THERE ARE CERTAIN INBUIL T MECHANISM MADE BY THE BUYER PREVENTING THE MISUSE OR INFRINGEMENT OF THE COPYRIGHT IN THE PRODUCT; THE MOMENT THE END USER ATTEMPTS TO VIOLAT E SUCH CONDITIONS, SUCH SOFTWARE BECOMES INOPERATIVE ON THE COMPUTER OR SOM ETIMES ALSO DAMAGE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 33 THE OTHER DATA/APPLICATIONS ON THE COMPUTER. HOWEV ER, FOR THE ENFORCEABILITY OF SUCH LICENSE AGREEMENT IT IS NOT KNOWN WHO IS ACTUAL USER OR WHICH PERSON ACTUALLY HAS VIOLATED THE TERMS OF THE AGREEMENT. SUPPOSE, IN CASE OF A COMPANY A PRODUCT IS PURCHASED BY THE STAFF OF THE COMPANY, FOR ITS USE IN REGULAR COURSE OF WORK OR BUSINESS O F THE COMPANY AND AN EMPLOYEE OF THE COMPANY WHILE INSTALLING THE SOFTWA RE ON THE COMPUTER IN THE OFFICE OF THE COMPANY CLICKS THE BUTTON OR THE ICON I AGREE AND THEREAFTER SUCH AN EMPLOYEE OR ANY OTHER EMPLOYEE O F THE COMPANY VIOLATES ANY CONDITION OF THE LICENSE AGREEMENT, CA N SUCH LICENSE AGREEMENT BE ENFORCED AGAINST THE COMPANY OR THE DI RECTORS OF THE COMPANY CAN BE HELD LIABLE FOR ANY SUCH INFRINGEMEN T, ESPECIALLY WHEN THEY ARE NOT SIGNATORIES TO SUCH AN AGREEMENT AND N OR THEY HAVE AUTHORIZED ANY EMPLOYEE OF THE COMPANY TO SIGN ANY AGREEMENT O N BEHALF OF THE COMPANY AND EVEN NO NAME OF THE COMPANY IS EVEN WRI TTEN IN SUCH TYPE OF AGREEMENT AND EVEN IT IS ALSO NOT KNOWN AS TO WHO ACTUALLY CLICKED THE BUTTON I AGREE. UNDER THESE CIRCUMSTANCES, THE E NFORCEABILITY OF SUCH A LICENSE IS HIGHLY DOUBTFUL. SO FAR AS THE LEGAL ENFORCEABILITY OF SUCH A LICEN CE AGREEMENTS IS CONCERNED, IN SPITE OF THE FACT THAT IT MAY FULFILL ALL THE REQUIREMENTS OF A VALID CONTRACT, SUCH AN AGREEMENT MAY NOT BE ENFORC EABLE, IF, ITS STIPULATIONS CONFLICT WITH THE LAW GOVERNED IN THE COUNTRY WHERE SUCH LICENSES ARE INTENDED TO BE ENFORCED, OR IF IT IS A N UNCONSCIONABLE OR UNREASONABLE BARGAIN. IN COMPUTER SOFTWARE, GENERAL LY IT IS THE TENDENCY OF SOFTWARE PRODUCERS TO DO AWAY WITH THE RIGHTS AND P RIVILEGES OF THE USER, EVEN WHICH ARE SPECIFICALLY CONFERRED UPON THE USER BY THE RELEVANT LAWS SUCH AS COPYRIGHT ACT, CONTRACT ACT AND OTHER RELEV ANT LAWS. THE FAIR USE OF THE PURCHASED ARTICLE IS THE OTHER PLEA WHICH CO NTRADICTS THE LICENSE THEORY. AS PER THE PROVISIONS OF SECTION 52 OF THE COPYRIGHT ACT 1957, WHICH HAS PROVISIONS SIMILAR TO THE PROVISIONS OF S ECTION 117 OF THE US COPYRIGHT ACT, THE OWNER OF A COPYRIGHT OF COMPUTER SOFTWARE IS LEGALLY ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 34 ENTITLED TO FAIR USE THAT COPY OF SOFTWARE EVEN WIT HOUT A LICENSE FROM THE SOFTWARE PUBLISHER AND ANY CONDITION PUT IN A LICEN SE RESTRICTING THE FAIR OR REASONABLE USE OF THE PRODUCT PURCHASED BY THE BUYE R IN THAT RESPECT WILL HAVE TO BE IGNORED. IF THE LICENSE SEVERELY LIMITS THE RIGHTS OF THE CONSUMERS, SUCH AS IMPLIED CONDITIONS AND WARRANTIE S IN A CONTRACT, IT CANNOT BE ENFORCED. IF IN THE LICENSE AGREEMENT, TH ERE ARE CERTAIN CONDITIONS WHICH ARE IN VIOLATION OF THE PROVISIONS OF THE CON TRACT ACT, THEN SUCH CONDITIONS CANNOT BE ENFORCED AND EVEN UNDER SOME C IRCUMSTANCES, THE WHOLE CONTRACT CAN BE HELD TO BE VOID. THESE TERMS OF THE MASS SOFTWARE LICENSE ARE IN THE SHAPE OF STANDARD TERMS WHICH THE LICENSEE OR THE USER OF THE PRODUCT OFTEN IGNORES WHILE ACCEPTING THE LI CENSE BEFORE DOWNLOADING THE SOFTWARE. THE COURTS IN INDIA IN S UCH A SITUATION HAVE OPINED THAT SUCH STANDARD CONDITIONS PUT IN A CONTR ACT WHICH ARE OFTEN IN THE FORM OF STANDARD FORMAT AND BEING SO MUCH DETAI LED AND NUMEROUS AND ARE GENERALLY NOT READ BY THE OTHER PARTY/BUYER OF THE PRODUCT, SHOULD BE FAIR AND ANY UNFAIR CONDITION RESTRICTING THE USERS RIGHTS RELATING TO THE GOODS OR THE SERVICES AVAILED OF, WHICH CAN BE HELD TO BE UNREASONABLE AND AGAINST THE PUBLIC POLICY, CANNOT BE ENFORCED. THU S THESE LICENSES CREATE A CLEAR CONFLICT BETWEEN COPYRIGHT LAW AND CONTRACT L AW, WHICH HAVE DIFFERENT PURPOSES AND OBJECTIVES. THE TECHNOLOGIC AL RESTRICTIONS SUCH AS ENCRYPTION TECHNOLOGY AND TRANSACTIONAL DESIGN HAVI NG RESTRICTIONS ON THE DEVELOPMENT, USE, SERVICES, MAY BE CALLED IN QUESTI ON UNDER THE COMPETITION ACT, 2002 ALSO. FURTHER THE CONDITION I N THE AGREEMENT THAT THE OWNERSHIP OF EACH COPY OF SOFTWARE WOULD REMAIN WIT H THE SOFTWARE PUBLISHER AND THAT THE USER WILL HAVE ONLY RIGHT TO USE THE SOFTWARE IS TO BE LOOKED IN TERMS OF THE INDIAN CONTRACT ACT TO ARRIV E AT A CONCLUSION WHETHER SUCH A CONDITION IS REASONABLE AND IS NOT A GAINST THE PUBLIC POLICY OR WHETHER IT IS RESTRICTING THE FAIR USE OF RIGHT OF THE USER/PURCHASER OF THE PRODUCT. IT IS ALSO A DETERMINATIVE FACTOR AS TO WH ETHER THE PROPERTY IN THE GOODS AFTER BUYING OFF THE SHELF PRODUCT IN CASE OF SHRINK WRAPPED SOFTWARE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 35 HAS PASSED ON TO THE PURCHASER OR NOT AS PER THE PR OVISIONS OF SALE OF GOODS ACT 1930. 37. AS DISCUSSED ABOVE, IN CASE OF SHRINK WRAPPED S OFTWARE, THE WORK IS EMBEDDED IN THE DISKETTE/CD ROM WHICH IS WHEN SOLD TO THE BUYER IN RETAIL TRANSACTION AS IN CASE OF SALE OF GOODS AN D CONSEQUENTLY ON THE COMPLETION OF THE SALE, THE PROPERTY IN SUCH GOODS PASSES TO THE BUYER. THE USER/PURCHASER OF THE CD ROM OR THE DISKETTE IS THE OWNER OF THE COPY AND IN SUCH A CASE, A LICENSE IS NOT TECHNICALLY REQUIR ED IN ORDER FOR THE PURCHASER TO USE THE COPYRIGHTED PRODUCT/SOFTWARE F OR HIS OWN/ BUSINESS USE. SO WHAT THE BUYER BUYS IS THE COPYRIGHTED PRO DUCT AND HE IS ENTITLED TO FAIR USE OF THE PRODUCT AS IS PROVIDED UNDER SEC TION 52 OF THE COPYRIGHT ACT. HE IS ALSO ENTITLED TO PERFORM ALL OR ANY OF THE ACTIVITIES WHICH IS ESSENTIALLY REQUIRED FOR THE FAIR USE AND FOR THE P URPOSE FOR WHICH THE PRODUCT IS PURCHASED BY THE BUYER. 38. IT MAY ALSO BE POINTED OUT HERE THAT EVEN, IF, SUCH A LICENSE AGREEMENT IS NOT SIGNED BY THE END USER STILL THE O WNER OF THE PRODUCT WILL HAVE THE COPYRIGHTS IN SUCH A PRODUCT, AS ARE DEFIN ED AND EXPLAINED UNDER THE INDIAN COPYRIGHT ACT; EVEN THE REGISTRATION OF THE PRODUCT OR THE WORK UNDER THE COPYRIGHT ACT IS NOT COMPULSORY. THE OWNE R OF THE WORK IS DEEMED TO BE PROTECTED IN RELATION TO THE COPYRIGHT S IN THE WORK BUT THE FAIR USE OF THE PRODUCT/WORK CANNOT BE DENIED AND ANY CL AUSE IN SUCH AGREEMENT SHOULD BE DEEMED TO BE VOID AS AGAINST THE PRINCIPL E OF FAIR USE OF THE PRODUCT. 39. FURTHER, TO DETERMINE WHETHER A COPYRIGHT IN A WORK IS INFRINGED OR NOT OR WOULD BE DEEMED TO BE INFRINGED OR NOT, THE MOST IMPORTANT TEST IS TO FIND OUT WHETHER THE USE IS LIKELY TO HARM THE POTE NTIAL MARKET OR THE VALUE OF THE COPYRIGHT WORK. WHEN IT IS NOT THE ALLEGATIO N OF THE OWNER/PURCHASER OF THE WORK THAT THE PURCHASER/USER WAS REPRODUCING THE WORK AND ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 36 DISTRIBUTING IT SO AS TO AFFECT HIS POTENTIAL MARKE T IN EXERCISING THE REPRODUCTION RIGHT, THEN IT CANNOT BE SAID THAT THE USER HAS INFRINGED THE RIGHTS OF THE PURCHASER, WHO IN FACT HAS PAID THE C ONSIDERATION TO USE THE COPYRIGHTED WORK. THE USE OF INFORMATION IN THE WO RK BY THE PURCHASER FOR WHICH HE PURCHASES SUCH A PRODUCT/DISKETTE/CD ROM I S THUS COMES WITHIN THE SCOPE OF FAIR USE. COPYRIGHT DOES NOT PROTECT THE FAIR OR EXCLUSIVE USE OF THE INFORMATION RATHER, THE PURPOSE OF COPYRIGHT PROTECTION IS TO REGULATE THE DISSEMINATION OF INFORMATION VIZ. PRODUCTION O F THE COPIES OF THE COPYRIGHTED WORK/INFORMATION AND DISTRIBUTION THERE OF. THE USE OF INFORMATION VIZ. A NEW TECHNOLOGY OR INVENTION CAN, HOWEVER, BE PR OTECTED UNDER THE PATENTS ACT, 1970. HOWEVER, IT IS PERTINE NT TO MENTION HERE THAT EVEN UNDER THE PATENTS ACT 1970, THE COMPUTER SOFTW ARE CAN NOT BE PATENTED. THE COMPUTER SOFTWARE, SUBJECT TO CERTAIN EXCEPTION, HAVE BEEN SPECIFICALLY EXCLUDED FROM PATENTABLE ITEMS UNDER T HE PATENTS ACT, 1970. 40. AT THIS STAGE, WE THINK IT APPROPRIATE TO DISCU SS HERE THE RELEVANT PROVISIONS OF THE COPYRIGHT ACT, 1957 ALSO. THE COP YRIGHT HAS BEEN DEFINED UNDER SECTION 14 OF THE COPYRIGHT ACT, 1957 AS UNDE R: 14. MEANING OF COPYRIGHT FOR THE PURPOSES OF THI S ACT, COPYRIGHT MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS A CT, TO DO OR AUTHORIZE THE DOING OF AY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR AN Y SUBSTANTIAL PART THEREOF, NAMELY: (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAMME, - (I) TO REPRODUCE THE WORK IN ANY MATERIAL FROM INCL UDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES THE WORK TO THE PUBLIC NOT BEI NG COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORD ING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK; (VI) TO MAKE ANY ADAPTATION OF THE WORK; (VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADA PTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-C LS. (I) TO (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME ,- ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 37 (I) TO DO ANY OF THE ACTS SPECIFIED IN CL. (A); (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPL Y IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ES SENTIAL OBJECT OF THE RENTAL. 41. SECTION 51 OF THE COPYRIGHT IS ALSO RELEVANT WH ICH DEALS AS TO WHEN THE COPYRIGHT IS INFRINGED WHICH FOR THE SAKE OF CONVEN IENCE IS REPRODUCED AS UNDER: CHAPTER XI INFRINGEMENT OF COPYRIGHT 51. WHEN COPYRIGHT INFRINGED. -COPYRIGHT IN A WORK SHALL BE DEEMED TO BE INFRINGED- (A) WHEN ANY PERSON, WITHOUT A LICENCE GRANTED BY THE OWNER OF THE COPYRIGHT OR THE REGISTRAR OF COPYRIGHTS UNDER THIS ACT OR IN CO NTRAVENTION OF THE CONDITIONS OF A LICENCE SO GRANTED OR OF ANY CONDITION IMPOSED BY A COMPETENT AUTHORITY UNDER THIS ACT- (I) DOES ANYTHING, THE EXCLUSIVE RIGHT TO DO WHICH IS BY THIS ACT CONFERRED UPON THE OWNER OF THE COPYRIGHT, OR (II) PERMITS FOR PROFIT ANY PLACE TO BE USED FOR TH E COMMUNICATION OF THE WORK TO THE PUBLIC WHERE SUCH COMMUNICATION CONSTITUTES AN INFR INGEMENT OF THE COPYRIGHT IN THE WORK, UNLESS HE WAS NOT AWARE AND HAD NO REASON ABLE GROUND FOR BELIEVING THAT SUCH COMMUNICATION TO THE PUBLIC WOULD BE AN INFRIN GEMENT OF COPYRIGHT; OR (B) WHEN ANY PERSON- (I) MAKES FOR SALE OR HIRE, OR SELLS OR LETS FOR HI RE, OR BY WAY OF TRADE DISPLAYS OR OFFERS FOR SALE OR HIRE, OR (II) DISTRIBUTES EITHER FOR THE PURPOSE OF TRADE OR TO SUCH AN EXTENT AS TO AFFECT PREJUDICIALLY THE OWNER OF THE COPYRIGHT, OR (III) BY WAY OF TRADE EXHIBITS IN PUBLIC, OR (IV) IMPORTS INTO INDIA, ANY INFRINGING COPIES OF T HE WORK PROVIDED THAT NOTHING IN SUB-CLAUSE (IV) SHALL APPL Y TO THE IMPORT OF ONE COPY OF ANY WORK FOR THE PRIVATE AND DOMESTIC USE OF THE IMPORT ER. EXPLANATION.- FOR THE PURPOSES OF THIS SECTION, THE REPRODUCTION OF A LITERARY, DRAMATIC, MUSICAL OR ARTISTIC WORK IN THE FORM OF A CINEMATOGRAPH FILM SHALL BE DEEMED TO BE AN 'INFRINGING COPY' 42. CERTAIN PROVISIONS OF SECTION 52 OF THE COPYRIG HT ACT WHICH ARE RELEVANT ARE ALSO REPRODUCED AS UNDER: 52. CERTAIN ACTS NOT TO BE INFRINGEMENT OF COPYRIG HT.-(1) THE FOLLOWING ACTS SHALL NOT CONSTITUTE AN INFRINGEMENT OF COPYRIGHT, NAMELY : (A) A FAIR DEALING WITH A LITERARY, DRAMATIC, MUSIC AL OR ARTISTIC WORK 104 [NOT BEING A COMPUTER PROGRAMME] FOR THE PURPOSES OF- ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 38 PRIVATE USE, INCLUDING RESEARCH; CRITICISM OR REVIE W, WHETHER OF THAT WORK OR OF ANY OTHER WORK; (AA) THE MAKING OF COPIES OR ADAPTATION OF A COMPUT ER PROGRAMME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FRO M SUCH COPY- IN ORDER TO UTILIZE THE COMPUTER PROGRAMME FOR THE PURPOSES FOR WHICH IT WAS SUPPLIED; OR TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTEC TION AGAINST LOSS, DESTRUCTION OR DAMAGE IN ORDER ONLY TO UTILISE THE COMPUTER PRO GRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED; (AB) THE DOING OF ANY ACT NECESSARY TO OBTAIN INFOR MATION ESSENTIAL FOR OPERATING INTER-OPERABILITY OF AN INDEPENDENTLY CREATED COMPU TER PROGRAMME WITH OTHER PROGRAMMES BY A LAWFUL POSSESSOR OF A COMPUTER PROG RAMME PROVIDED THAT SUCH INFORMATION IS NOT OTHERWISE READILY AVAILABLE; (AC) THE OBSERVATION, STUDY OR TEST OF FUNCTIONING OF THE COMPUTER PROGRAMME IN ORDER TO DETERMINE THE IDEAS AND PRINCIPLES WHICH U NDERLINE ANY ELEMENTS OF THE PROGRAMME WHILE PERFORMING SUCH ACTS NECESSARY FOR THE FUNCTIONS FOR WHICH THE COMPUTER PROGRAMME WAS SUPPLIED; (AD) THE MAKING OF COPIES OR ADAPTATION OF THE COMP UTER PROGRAMME FROM A PERSONALLY LEGALLY OBTAINED COPY FOR NON-COMMERCIAL PERSONAL USE; 43. THE PROVISO TO SECTION 57 OF THE ACT IS ALSO RE LEVANT. THE SAID SECTION 57 OF THE ACT OF 1957 IS ALSO REPRODUCED AS UNDER: 57. [AUTHORS SPECIAL RIGHTS. (1) INDEPENDENTLY OF THE AUTHORS COPYRIGHT AND EVEN AFTER THE ASSIGNMENT EITHER WHOLLY OR PARTIALL Y OF THE SAID COPYRIGHT, THE AUTHOR OF A WORK SHALL HAVE THE RIGHT- (A) TO CLAIM AUTHORSHIP OF THE WORK; AND (B) TO RESTRAIN OR CLAIM DAMAGES IN RESPECT OF ANY DIST ORTION, MUTILATION, MODIFICATION OR OTHER ACT IN RELATION TO THE SAID W ORK WHICH IS DONE BEFORE THE EXPIRATION OF THE TERM OF COPYRIGHT IF S UCH DISTORTION, MUTILATION, MODIFICATION OR OTHER ACT WOULD BE PREJ UDICIAL TO HIS HONOUR OR REPUTATION: PROVIDED THAT THE AUTHOR SHALL NOT HAVE ANY RIGHT T O RESTRAIN OR CLAIM DAMAGES IN RESPECT OF ANY ADAPTATION OF A COMPUTER PROGRAMME TO WHICH CLAUSE (AA) OF SUB-SECTION (1) OF SECTION 52 APPLIE S . 44. A PERUSAL OF THE ABOVE PROVISIONS OF THE COPYR IGHT ACT REVEALS THAT THE COMPUTER SOFTWARE IS INCLUDED IN THE DEFINITION OF LITERARY WORK AND IS COVERED UNDER THE PURVIEW AND SCOPE OF COPYRIGHT. THE EXCL USIVE RIGHTS TO DO OR AUTHORIZE THE DOING OF CERTAIN ACTS AS MENTIONED IN CLAUSE (A) AND CLAUSE (B) OF SECTION 14 VESTS IN THE OWNER OF THE WORK AND AS PE R SECTION 51 OF THE ACT, ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 39 COPYRIGHT IN A WORK SHALL BE DEEMED TO BE INFRINGED WHEN ANY PERSON WITHOUT LICENSE GRANTED BY THE OWNER OF THE COPYRIGHT OR IN CONTRAVENTION OF THE CONDITIONS OF A LICENSE SO GRANTED DOES ANYTHING, T HE COPYRIGHT OF THE OWNER IS STATED TO BE INFRINGED. HOWEVER A PERUSAL OF THE ABOVE PROVISIONS OF THE CO PYRIGHT ACT ALSO REVEALS THAT EVEN IN SOME CASES UNAUTHORIZED USES O F A COPYRIGHT WORK IS NOT NECESSARILY INFRINGING. AN UNLICENSED USE OF TH E COPYRIGHT IS NOT AN INFRINGEMENT UNLESS IT CONFLICTS WITH ONE OF THE SP ECIFIC EXCLUSIVE RIGHTS COVERED BY THE COPYRIGHT STATUE. FURTHER THERE ARE CERTAIN EXCEPTIONS ALSO. AS PER THE PROVISO TO SUB CLAUSE (IV) TO THE CLAUSE (B) TO SECTION 51, IMPORT INTO INDIA OF ONE INFRINGING COPY OF ANY WORK FOR T HE PRIVATE AND DOMESTIC USE OF THE IMPORTER WILL NOT BE CONSIDERED AS INFRI NGEMENT. FURTHER, THE SECTION 52 OF THE ACT PROVIDES FOR CER TAIN OTHER EXCEPTIONS AND THE DOING OF SUCH ACTS AS MENTIONED UNDER SECTI ON 52 IS NOT CONSIDERED AS INFRINGEMENT OF THE COPYRIGHT AS PER THE STATUTE . IN CASE OF SOFTWARE, IT HAS BEEN PROVIDED THAT MAKI NG OF COPIES OR ADAPTATION OF A COMPUTER PROGRAMME BY THE LAWFUL PO SSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME FROM SUCH COPY IN ORDER TO UTILIZE THE COMPUTER PROGRAMME FOR THE PURPOSE OF WHICH IT WAS SUPPLIED OR TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTECTION AGA INST LOSS, DESTRUCTION OR DAMAGE AND IN ORDER TO UTILIZE THE COMPUTER PROG RAMME AND FURTHER THE DOING OF ANY ACT NECESSARY TO OBTAIN INFORMATIO N ESSENTIAL FOR OPERATING INTER OPERATABILITY OF AN INDEPENDENTLY C REATED COMPUTER PROGRAMME WITH OTHER PROGRAMMES IN CASE SUCH INFORM ATION IS NOT OTHERWISE READILY AVAILABLE, THE OBSERVATION, STUDY OR TEST OF FUNCTIONING OF COMPUTER PROGRAMME WITH DETERMINATION, THE IDEAS AN D PRINCIPLES NECESSARY FOR THE FUNCTIONS FOR WHICH THE COMPUTER PROGRAMME WAS SUPPLIED AND THE MAKING OF COPIES OR ADAPTATION OF COMPUTER PROGRAMME FROM A PERSONALLY AND LEGALLY OBTAINED COPY FROM NO N-COMMERCIAL PERSONAL USE, HAVE BEEN EXCLUDED FROM THE DEFINITIO N OF INFRINGEMENT OF ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 40 COPYRIGHT. EVEN IMPORT OF ONE INFRINGED COPY OF TH E WORK FOR PRIVATE AND DOMESTIC WORK OF THE IMPORTER HAS BEEN EXCLUDED FRO M THE SCOPE OF INFRINGEMENT OF COPYRIGHT UNDER THE ACT. 45. IT IS ALSO PERTINENT TO MENTION HERE THAT THE INCOM E TAX ACT DOES NOT SPECIFICALLY INCLUDE THE COMPUTER SOFTWARE IN THE TERM LITERARY WORK AND UNDER SUCH CIRCUMSTANCES, IF WE APPLY THE SAME ANALOGY TO THE TREATY, THEN PERHAPS THE COMPUTER SOFTWARE WILL BE OUT OF THE SCOPE OF THE TREATY. HOWEVER, IF WE APPLY THE COPYRIGHT ACT, THEN THE C OMPUTER SOFTWARE WILL HAVE TO BE INCLUDED IN THE TERM LITERARY WORK BUT TO CONSTITUTE ROYALTY UNDER THE TREATY, THE CONSIDERATION SHOULD HAVE BEEN PAID FOR THE USE OF OR THE RIGHT TO USE THE COPYRIGHT IN THE LITERARY WORK AND NOT THE LITER ARY WORK ITSELF. 46. FURTHER, WHEN WE READ THE DEFINITION OF COPYRIG HT AND LITERARY WORK AS PROVIDED IN THE COPYRIGHT ACT, 1957, IT IS ALSO IMP ORTANT TO NOTE DOWN THAT WHAT CONSTITUTES INFRINGEMENT OF COPYRIGHT AND WHAT ARE THE EXCEPTIONS TO IT. IF THE SOFTWARE PURCHASED BY THE ASSESSEE AND THE USE OF IT BY THE ASSESSEE IS COVERED WITHIN THE EXCEPTIONS AS PROVIDED UNDER SEC TION 52 OF THE COPYRIGHT ACT, THEN IN THAT EVENT IT CANNOT BE SAID THAT THE TRANSFER OF RIGHT TO USE OR FOR USE OF THE COPYRIGHT HAS PASSED. THE PROVISO TO SE CTION 57 OF THE COPYRIGHT ACT HAS FURTHER CLARIFIED THAT THE AUTHOR OF THE WO RK SHALL NOT HAVE RIGHT TO RESTRAIN OR CLAIM DAMAGES IN RESPECT OF ANY ADAPTAT ION OF A COMPUTER PROGRAMME TO WHICH CLAUSE (AA) OF SUB SECTION (1) O F SECTION 52 APPLIES. 47. FURTHER IN CASE OF IMPORTED SOFTWARE I.E. IF THE ORIGINAL WORK HAS BEEN PUBLISHED OUTSIDE INDIA, AS PER THE PROVISIONS OF T HE COPYRIGHT ACT, APART FROM THE WORK BEING ORIGINAL AND NOT COPIED FROM ELSEWHE RE, THE WORK SHOULD BE FIRST PUBLISHED IN INDIA OR IF THE WORK IS PUBLISHED OUTSIDE INDIA, THE AUT HOR ON THE DATE OF PUBLICATION, IF THE AUTHOR IS DEAD, AT THE TIME OF HIS DEATH, SHOULD BE CITIZEN OF INDIA . IN CASE OF UNPUBLISHED WORK, THE AUTHOR ON THE D ATE OF MAKING OF A WORK SHOULD BE A CITIZEN OF INDIA OR DO MICILE IN INDIA. SECTION 40 ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 41 OF THE COPYRIGHT ACT 1957, PROVIDES FOR INTERNATION AL COPYRIGHTS. AS PER THE SECTION 40 OF THE ACT, THE GOVERNMENT OF INDIA MAY BY AN ORDER PUBLISHED IN THE OFFICIAL GAZETTE DIRECT THAT ALL OR ANY PROVISIONS OF THIS ACT SHALL APPLY TO THE WORK PUBLISHED OR UNPUBLISHED IN ANY TERRITORY OUTS IDE INDIA. SUCH A RIGHT IS EXTENDED IN RELATION TO COUNTRIES WHICH HAVE ENTERE D INTO A TREATY OR WHICH ARE A PARTY TO A CONVENTION RELATING TO RIGHTS OF THE C OPYRIGHT OWNERS AND HAVE UNDERTAKEN TO MAKE SUCH PROVISIONS IN THEIR LAWS IN RELATION TO THE INDIAN AUTHORS FOR PROTECTION OF THEIR RIGHTS IN THEIR COU NTRY. SECTION 40, 40A AND SECTION 41OF THE COPYRIGHT ACT, 1957 ARE RELEVANT I N THIS RESPECT. SECTION 42 OF THE COPYRIGHT ACT, HOWEVER, PUT CERTAIN RESTRICTION S ON THE RIGHTS IN WORKS OF FOREIGN AUTHORS FIRST PUBLISHED IN INDIA WHEREIN IT HAS BEEN PROVIDED THAT IF A FOREIGN COUNTRY DOES NOT GIVE ADEQUATE PROTECTION T O THE WORKS OF THE INDIAN AUTHORS, THE CENTRAL GOVERNMENT MAY DIRECT THAT SUC H OF THE PROVISIONS OF THE ACT AS CONFER COPYRIGHT ON WORKS FIRST PUBLISHED IN INDIA OF THE FOREIGN AUTHORS SHALL NOT APPLY. SO IF A FOREIGN COUNTRY RECOGNIZE S THE COPYRIGHTS OF THE INDIAN AUTHORS IN THEIR COPYRIGHTED WORK, THE INDIA ALSO A LLOWS THE COPYRIGHT TO THE FOREIGN AUTHORS ON RECIPROCAL BASIS. SO A FOREIGN AUTHOR CAN CLAIM THE COPYRIGHT IN A PRODUCT, IF INDIA HAS A TREATY WITH THAT COUNTRY OR IF INDIA AND THAT OTHER COUNTRY ARE SIGNATORIES OF THE CERTAIN INTERN ATIONAL TREATIES OR CONVENTIONS E.G. BERNE CONVENTION TO WHICH INDIA IS A SIGNATORY. UNDER SUCH CIRCUMSTANCES, IN RESPECT OF WORKS DONE IN FOREIGN COUNTRIES OR BY FOREIGN AUTHORS, THE COPYRIGHT DOES NOT AUTOMATICALLY FLOW OR EXTENDED TO THEM. THE RIGHTS OF THE FOREIGN AUTHOR ARE TO BE EXAMINED IN THE LIGHT OF THE COPYRIGHT ACT AND THE RELEVANT TREATY OR THE CONVEN TION, IF ANY, SIGNED BY INDIA WITH THAT COUNTRY TO WHICH THE FOREIGN AUTHOR BELONGS. THE COPYRIGHT IN A FOREIGN PRODUCT THUS DOES NOT FLOW A UTOMATICALLY OR IMPLIEDLY, SO FAR AS THE INDIAN COPYRIGHT LAWS ARE CONCERNED. 48. HENCE, WHILE INTERPRETING THE DEFINITION OF RO YALTY AS PROVIDED IN THE DTAA, IT IS TO BE SEEN AS TO WHAT HAS BEEN PURCHASE D BY THE ASSESSEE I.E. ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 42 WHETHER THE COPYRIGHT ITSELF HAS BEEN PURCHASED O R WHAT THE ASSESSEE HAS PURCHASED IS ONLY A COPYRIGHTED WORK. IT IS ALSO REQUIRED TO BE ANALYSED AS TO WHETHER THE USE OF SUCH RIGHT WOULD AMOUNT TO INFRI NGEMENT OF COPYRIGHT IF A LICENSE OR PERMISSION IN THIS RESPECT IS NOT GIVEN BY THE OWNER; AND WHEN ASSESSEE HAS PURCHASED A COPYRIGHTED PRODUCT I.E. O FF THE SHELF SOFTWARE, WHETHER THE USE OF THE SAME FOR THE BUSINESS PURPOS E OF THE ASSESSEE IS COVERED WITHIN THE EXCEPTIONS AS PROVIDED UNDER SECTION 52 OF THE COPYRIGHT ACT. FURTHER, IN CASE OF IMPORTED WORK/PRODUCT, WHETHER THE PROTECTION OF COPYRIGHT IS AVAILABLE TO THE FOREIGN AUTHOR IN TERMS OF SECT ION 40,40A, 41 AND 42 OF THE COPYRIGHT ACT 1957. 49. THE PROVISIONS OF THE COPYRIGHT ACT, AS DISCUSS ED ABOVE ARE CLEAR AND UNAMBIGUOUS IN THIS RESPECT. IF THE ASSESSEE HAS PU RCHASED A COPY OF A COMPUTER SOFTWARE PROGRAMME AND HE USES THE SAID CO PY FOR HIS BUSINESS PURPOSE AND IF THE SAID USE FALLS WITHIN THE SCOPE AND PURVIEW OF THE EXCEPTIONS OF SECTION 52, SUCH AS THE USE OF IT FOR THE PURPO SE FOR WHICH IT IS SUPPLIED AND TO MAKE BACKUP COPIES FOR TEMPORARY PURPOSE AS A PR OTECTION AGAINST LOSS OR DAMAGE AND DOING OF ANY ACT NECESSARY TO OBTAIN INF ORMATION ESSENTIAL FOR OPERATING THE SOFTWARE FOR THE PURPOSE FOR WHICH IT IS PURCHASED ETC. AS PROVIDED UNDER SECTION 52, THEN IN THAT EVENT IT CA NNOT BE SAID TO BE AN INFRINGEMENT OF COPYRIGHTS OF THE AUTHOR OR OWNER O F THE WORK. AS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUN G ELECTRONICS COMPANY LTD. & OTHERS (SUPRA) WHILE RELYING UPON ARTICLE 3 SUB SECTION (2) OF THE DTAA WITH US AS THE IDENTICALLY WORDED ARTICLE BEIN G THERE IN ALMOST ALL THE TAX TREATIES WITH OTHER COUNTRIES, THAT ANY TERM NO T DEFINED IN THE CONVENTION SHALL, UNLESS THE CONTEXT OTHERWISE REQUIRES, HAVE THE MEANING WHICH IT IS UNDER THE LAWS OF THAT STATE CONCERNING THE TAX TO WHIC H THE CONVENTION APPLIES. IN VIEW OF ABOVE, WHEN WE SEE THE DEFINITION AS PER TH E STATUTORY PROVISIONS/DOMESTIC LAW OF THE COUNTRY I.E. COPYRIG HT ACT,1957 OF INDIA WHICH IS THE TAXING STATE IN THIS CASE, IT IS APPARENT T HAT THE FAIR USE OF THE WORK FOR ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 43 THE PURPOSE OF WHICH IT IS BEING PURCHASED AND DOIN G OF SUCH OTHER ACTS INCLUDING MAKING OF COPY FOR PROTECTION FROM DAMAGE OR LOSS CAN NOT, IN ANY CASE, SAID TO BE ANY INFRINGEMENT OF COPYRIGHT WHE THER OR NOT ANY LICENSE IN THIS RESPECT HAS BEEN GRANTED BY THE AUTHOR/OWNER O F THE WORK. THE RIGHT TO USE OR FOR USE OF THE PRODUCT ACCRUES TO THE PURCHASER BY THE OPERATION OF THE STATUTE AND AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD. (SUPRA), THE SAME WOULD AMOUNT TO THE SALE OF A GOO DS AND THE ACTS DONE SUCH AS DOWNLOADING OF THE SAME TO THE COMPUTER OR MAKIN G BACKUP COPIES ETC. WOULD BE THE NECESSARY ACTS FOR ENABLING THE USE OF THE PRODUCT AND WOULD NOT AMOUNT TO THE TRANSFER OF COPYRIGHT OR RIGHT THEREI N, BUT ONLY THE TRANSFER OF THE COPYRIGHTED PRODUCT AND THUS WILL NOT BE COVERED UN DER THE DEFINITION OF ROYALTY UNDER DTAA. THE CONSIDERATION, THUS, PAID WILL BE THE BUSINESS INCOME OF THE NON-RESIDENT AND TAXABLE IN ACCORDANC E WITH THE PROVISIONS OF DTAA. WE MAY CLARIFY HERE THAT EVEN IN CASES WHERE THE OWNER OF THE COPYRIGHTED WORK MAY RESTRICT THE USE OF OR RIGHT TO USE THE WORK BY WAY OF CERTAIN TERMS OF THE LICENSE/SOFTWARE AGREEMENT, TH E VALIDITY OR THE ENFORCEABILITY OF THE SAME MAY BE SUBJECT MATTER IN OTHER LAWS SUCH AS INDIAN CONTRACT ACT 1872 , SALE OF GOODS ACT 1930 OR THE C ONSUMER PROTECTION ACT 1986 ETC., BUT, THE SAME IN ANY WAY CAN NOT BE SAID TO GRANT OF OR INFRINGEMENT OF COPYRIGHT IN THE LIGHT OF SPECIFIC STATUTORY PRO VISIONS OF COPYRIGHT ACT 1957. 50. NOW COMING TO THE FACTS OF THE CASE IN HAND, TH E DRP HAS GIVEN A SPECIFIC FINDING OF FACT THAT WHAT THE ASSESSEE IN THE PRESENT CASE HAS PURCHASED IS THE SHRINK WRAPPED /OFF THE SHELF SOFTWARE. IT H AS ALSO BEEN DISCUSSED IN DETAIL IN PARAS ABOVE THAT THE DEFINITION OF ROYAL TY GIVEN IN THE TREATY IS MORE BENEFICIAL TO THE ASSESSEE AS COMPARED TO THE PROVI SIONS OF SECTION 9 OF THE INCOME TAX ACT AND THE ASSESSEE HAS OPTED FOR THE D EFINITION THAT IS PROVIDED UNDER THE DTAA, THUS AS PER SECTION 90 OF THE INCOM E TAX ACT, DEFINITION OF ROYALTY AS PROVIDED IN THE DTAA WILL PREVAIL AS O VER THE GENERAL DEFINITION OF ROYALTY PROVIDED UNDER THE INCOME TAX ACT. HENCE, WITHOUT EXPRESSING OUR ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 44 OPINION OR ANY VIEW IN RELATION TO THE DEFINITION O F ROYALTY VIS--VIS COMPUTER SOFTWARE AS PROVIDED UNDER THE INCOME TAX ACT, WE HAVE GIVEN OUR FINDINGS ONLY IN RESPECT OF THE SCOPE OF ROYALITY UNDER THE DTAA. 51. IN VIEW OF OUR DETAILED DISCUSSION MADE ABOVE, THE ASSESSEE CAN NOT BE SAID TO HAVE PAID THE CONSIDERATION FOR USE OF OR T HE RIGHT TO USE COPYRIGHT BUT HAS SIMPLY PURCHASED THE COPYRIGHTED WORK EMBEDDED IN THE CD- ROM WHICH CAN BE SAID TO BE SALE OF GOOD BY THE OWNER. THE CONSIDERATION PAID BY THE ASSESSEE THUS AS PER THE CLAUSES OF DTAA CAN NOT BE SAID TO BE ROYALTY AND THE SAME WILL BE OUTSIDE THE SCOPE OF THE DEFINITION OF ROYALTY AS PROVIDED IN DTAA AND WOULD BE TAXABLE AS BUSINESS INCOME OF THE RECIPIENT. THE ASSESSEE IS ENTITLED TO THE FAIR USE OF THE WORK/PRODUCT INC LUDING MAKING COPIES FOR TEMPORARY PURPOSE FOR PROTECTION AGAINST DAMAGE OR LOSS EVEN WITHOUT A LICENSE PROVIDED BY THE OWNER IN THIS RESPECT AND THE SAME WOULD NOT CONSTITUTE INFRINGEMENT OF ANY COPYRIGHT OF THE OWNER OF THE W ORK EVEN AS PER THE PROVISIONS OF SECTION 52 OF THE COPYRIGHT ACT,1957 . 52. EVEN OTHERWISE, THE REVENUE HAS NOT CITED ANY DIRECT CASE LAW OF THE JURISDICTIONAL HIGH COURT OF BOMBAY BEFORE US. IN T HE CASE LAWS CITED BY THE REVENUE OF THE HONBLE KARANATKA HIGH COURT IN THE MATTER OF CIT VS. SAMSUNG ELECTRONICS COMPANY LTD. (SUPRA) AND CIT VS. SYNOPSIS INTERNATIONAL OLD LTD. (SUPRA ) THOUGH A VIEW IN FAVOUR OF THE REVENUE HAS BEEN TAKEN, BUT, THE HONBLE DELHI HIGH COURT IN TH E CASE OF DIT VS. INFRASOFT LTD. (SUPRA) WHICH IS A LATTER DECISION AND HAS DI SCUSSED THE SAMSUNG CASE ALSO HAS TAKEN THE VIEW IN FAVOUR OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT HAS TAKEN THE IDENTICAL VIEW FAVOURING THE AS SESSEE IN THE CASE OF DIT VS NOKIA NETWORK (SUPRA) AND IN THE CASE OF DIT VS. ERICSON A.B. (SUPRA) ALSO. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF THE ADDL. COMMISSIONER OF SALES TAX VS. M/S ANKIT INTERNATIONAL, SALES TAX APPEAL NO.9 OF 2011 VIDE ORDER DATED 15 SEPTEMBER, 2011 WHILE RELYING UPON T HE DECISIONS OF THE HONBLE SUPREME COURT IN THE COMMISSIONER OF INCOM E TAX V. VEGETABLE ITA NO.7779/M/2011 M/S. CAPGEMINI BUSINESS SERVICES (INDIA) LTD. 45 PRODUCT LTD. (1973) 88 ITR 192 AND IN MAURI YEAS T INDIA PVT. LTD. V. STATE OF U.P. (2008) 14 VST 259(SC) : (2008) 5 S.C.C. 680 HAS HEL D THAT, IF TWO VIEWS IN REGARD TO THE INTERPRETATION OF A PROVISIO N ARE POSSIBLE, THE COURT WOULD BE JUSTIFIED IN ADOPTING THAT CONSTRUCTION WH ICH FAVOURS THE ASSESSEE. RELIANCE CAN ALSO BE PLACED IN THIS REGARD ON THE D ECISION OF HONBLE SUPREME COURT IN BIHAR STATE ELECTRICITY BOARD AND ANOTHER VS. M/S. USHA MARTIN INDUSTRIES AND ANOTHER : (1997) 5 SCC 289. WE ACCOR DINGLY ADOPT THE CONSTRUCTION IN FAVOUR OF THE ASSESSEE. IN VIEW OF OUR DISCUSSION MADE ABOVE, THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 53. IN VIEW OF OUR OBSERVATIONS MADE ABOVE, THE APP EAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29.02.2016. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 29.02.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
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